- Fourth Quarter Adjusted Profit is First for Company Since 1994, Reported Fourth Quarter EPS Improves by $0.33
- 2003 Adjusted earnings per share: $3.57; Reported earnings per share: $3.23
- 4th quarter adjusted earnings per share: $0.02; Reported loss per share: $0.10
- North American consumer sales up 14% in quarter, 6% for full year
- Company expects adjusted net income growth of at least 10 percent in 2004

The Scotts Company, the world's largest marketer of branded consumer lawn and garden products, today announced record sales and net income for fiscal 2003. Sales in the fourth quarter also set a record for the period and the Company recorded its first profitable fourth quarter since 1994 on an adjusted basis.

The Company also announced that it expects to improve adjusted net income in fiscal 2004 by at least another 10 percent.

For fiscal 2003, which ended September 30, Scotts reported net sales of $1.91 billion, up 9 percent from $1.75 billion a year earlier. Excluding the impact of foreign exchange rates, sales for the year increased by 6 percent over the prior year. Adjusted net income for the year increased to $114.7 million, or $3.57 per diluted share, up 10 percent from $104.3 million, or $3.29 per diluted share, for the same period last year.

Adjusted earnings exclude restructuring and other charges of $10.9 million, net of tax. Including these restructuring and other charges, net income for the year was $103.8 million or $3.23 per diluted share compared with $82.5 million, or $2.61 per diluted share, for the same period last year. Those charges are related primarily to restructuring of the North American distribution model and the Company's international growth and integration efforts.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $301.8 million, compared with $289.5 million for the same period last year. Including restructuring and other charges, EBITDA was $284.7 million in 2003 compared with $282.7 million in 2002.

"The ability to grow adjusted net income by 10 percent in a year plagued by a late winter and cool, wet spring is a great accomplishment and speaks to the overall health of the lawn and garden category," said Jim Hagedorn, chairman and chief executive officer.

"Our success in 2003 went beyond our financial statements. We were named 'supplier of the year' at four major accounts across the United States and Europe. We also made significant strides to expand our brands in new categories like pottery and improve our overall presence with the independent nursery and hardware trade. Entering the year, we said we didn't believe there was a better business to be in than ours and I think we demonstrated why we believe this is true."

Consumer purchases of the company's branded products in the U.S. increased 8 percent at the company's largest retail accounts. Customer fill rates, an important aspect of overall customer service, improved to 97.4 percent in fiscal 2003.

Twelve Month Results

North American consumer sales were $1.32 billion for the year, up 6 percent from last year. Lawns was up 11 percent to $582 million, Gardening Products was flat at $473 million and Ortho increased 2 percent to $226 million.

Scotts LawnService, the company's fastest growing business, had revenues of $110 million, a 46 percent increase from 2002.

International Consumer sales were $281 million, up 14 percent from $247 million in 2002. Excluding the impact of foreign exchange rates and non- recurring sales from previous supply agreements, sales in this business increased about 2 percent. Global Professional sales were $200 million compared with $183 million last year and were flat excluding foreign exchange rates.

Consolidated gross margins declined 10 basis points to 36.2 percent, but gross margins excluding restructuring and other charges increased 20 basis points year-over-year. The Company had anticipated significant margin improvement in 2003 associated with the outsourcing of some distribution efforts as well as margin improvements in Scotts LawnService -- neither of which materialized as expected.

Net Roundup commission for the year was $17.6 million, compared with $16.2 million a year earlier. The net commission includes a $5 million increase in the contribution payment to Monsanto in accordance with the Roundup marketing agreement.

Fourth Quarter Results

The Company reported record sales in the period of $343 million, up 15 percent from $300 million last year. On an adjusted basis, Scotts reported net income in the quarter of $700,000, or $0.02 per diluted share, compared with a loss of $9.7 million, or $0.33 per share, for the same period last year. It was the first time since 1994 that Scotts reported an adjusted fourth quarter profit.

Fourth quarter adjusted earnings exclude restructuring and other charges of $3.8 million, net of tax. Including these restructuring and other charges, the net loss in the quarter was $3.1 million, or $0.10 per share.

Adjusted EBITDA was $31.4 million, compared with $11.3 million for the same period last year. Including restructuring and other charges, EBITDA was $25.5 million in 2003 compared with $6.5 million in 2002.

The Company's North American consumer business reported a 14 percent increase in sales in the quarter to $217 million. Within that business, Lawns reported a 16 percent increase in sales to $106 million, Gardening Products grew 7 percent to $63 million and Ortho sales increased by 17 percent to $43 million.

"Our entire North American business had an outstanding fourth quarter and finished the year with a great deal of momentum to build upon as we enter 2004," Hagedorn said. "The growth we saw in every category speaks to the continued strength of our industry-leading brands, innovative marketing and other consumer outreach efforts."

Scotts LawnService® reported sales in the quarter of $43 million, an increase of 40 percent from the same period last year.

International Consumer sales were $40 million, compared with $38 million for the same period last year. Excluding foreign exchange rates, sales decreased 8 percent in the quarter. Global Professional sales were $44 million in the quarter, or $41 million when excluding the impact of foreign exchange rates, flat with the same period last year.

Consolidated gross margin increased 240 basis points to 33.5 percent in the quarter, but gross margin excluding restructuring and other charges, increased by 330 basis points year-over-year. The improvement was due to higher volumes, the sale of higher margin products in the North American consumer business and gross margin improvements in the Global Professional business.

Net Roundup commission was $4.0 million, compared with $3.0 million a year earlier.

"The return to profitability in the fourth quarter is a major milestone and stems from an ongoing shift in the timing of shipments as well as the continued growth in Scotts LawnService and overall expense control," Hagedorn said. "While the profit this quarter was small, it was a major improvement from last year and it gives us great confidence in our ability to report three profitable quarters each year going forward."

The Scotts Company is the world's largest marketer of branded consumer lawn and garden products, 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 U.K., Scotts' brands include Weedol® and Pathclear®, the top-selling consumer herbicides; Evergreen®, the leading lawn fertilizer line; the Levington® line of lawn and garden products; and Miracle-Gro®.