The team at Cannin.com has a demonstrated track record of picking winning cannabis stocks and we’ve been long time fans of SMG. Today, ScottsMiracle-Gro announces record second quarter results as sales increased by 32% and is driven by strong demand in both major segments of their business. How will this news impact SMG stock? First, lets see the details about these record second quarter results.
Sales guidance for Hawthorne increases; U.S. Consumer continues to exceed expectations
- Hawthorne sales rise 66% in Q2 with strong growth in all product categories
- U.S. Consumer sales rise 23% driven by continued increases in consumer demand
- GAAP EPS: $5.44 versus $4.43; Non-GAAP adjusted EPS of $5.64 versus $4.50
- Company affirms plan to increase pricing to offset continued commodity pressure
MARYSVILLE, Ohio, May 05, 2021 (GLOBE NEWSWIRE) — The Scotts Miracle-Gro Company (NYSE: SMG), the world’s leading marketer of branded consumer lawn and garden as well as indoor and hydroponic growing products, today announced company-wide sales increased 32 percent in its fiscal second quarter driven by strong volume growth in both major business segments.
For the quarter ended April 3, 2021, GAAP earnings from continuing operations were $5.44 per share compared with $4.43 per share in the prior year. Non-GAAP adjusted earnings, which exclude impairment, restructuring and other non-recurring items, and are the basis of the Company’s financial guidance, were $5.64 per share compared with $4.50 a year ago.
On a fiscal year-to-date basis entering May, consumer purchases of the Company’s lawn and garden products at its largest four retailers in the U.S. increased over 20 percent from the same period a year ago. The Company said consumer purchases entering May were up double digits in every major product category and all regions of the U.S.
“The record level of consumer demand we have seen for our lawn and garden products is greater than we expected and may provide upside to the updated guidance we provided for our U.S. Consumer business in early April,” said Jim Hagedorn, chairman and chief executive officer. “Consumers told us entering the season that they intended to stay engaged with lawn and garden and, so far, that is exactly what they are doing. Retailer support for the category remains strong as we enter a period of challenging year-over-year comparisons.
“We also continue to exceed expectations at Hawthorne as we reported our fifth consecutive quarter of sales growth in excess of 60 percent and another month of strong results in April. Given the current momentum of this business, we feel comfortable once again increasing our sales guidance for Hawthorne to a range of 30 to 40 percent growth on a fiscal year basis.”
Second quarter details
For the fiscal second quarter, the Company reported sales of $1.83 billion, up 32 percent from $1.38 billion a year earlier. U.S. Consumer segment sales increased 23 percent to $1.37 billion. Sales for the Hawthorne segment increased 66 percent to $363.8 million. Due to the Company’s fiscal calendar, the second quarter of 2021 ended six days later than the second quarter of fiscal 2020. The shift had a sales impact of approximately $122.5 million within the lawn and garden business, impacting the U.S. Consumer and Other segments.
The company-wide gross margin rate was 36.0 percent on a GAAP basis and 36.6 percent on a non-GAAP adjusted basis compared with a rate of 39.8 percent and 40.0 percent, respectively, a year ago. As expected, segment mix was a significant driver of the decline given the growth of the lower-margin Hawthorne segment. Higher commodity and distribution costs also negatively impacted the rate but were partially offset by improved fixed cost leverage.
“The margin pressure we are experiencing from higher commodity and distribution costs is expected again in the third quarter and should begin to moderate with year-over-year pricing that takes effect in the fourth quarter,” said Cory Miller, senior vice president and interim chief financial officer. “Given cost pressures and other investments necessary to keep pace with recent growth trends, we have communicated to our retail partners our intention to increase prices of our consumer lawn and garden products by mid- to high-single digits effective in August. A similar price increase was implemented at Hawthorne in recent weeks.”
Selling, general and administrative expenses (SG&A) increased 18 percent to $231.5 million due to increased marketing investment and higher accruals related to variable compensation.
On a company-wide basis, GAAP income from continuing operations was $311.1 million, or $5.44 per diluted share, compared with $249.8 million, or $4.43 per diluted share, for the second quarter of fiscal 2020. These results include impairment, restructuring and other non-recurring items. Excluding these items, non-GAAP adjusted earnings were $322.3 million, or $5.64 per diluted share, compared with $253.8 million, or $4.50 per diluted share, last year.
For the first six months of fiscal 2021, the Company reported sales of $2.58 billion, up 47 percent from $1.75 billion a year earlier. U.S. Consumer segment sales increased 39 percent to $1.78 billion. Sales for the Hawthorne segment increased 68 percent to $673.2 million. The shift in the fiscal calendar contributed approximately $176.9 million. This impact will reverse in the second half of the year, which will have six fewer days than the second half of fiscal 2020.
The company-wide gross margin rate was 32.9 percent on a GAAP basis and 33.7 percent on a non-GAAP adjusted basis compared with a rate of 34.6 percent and 34.8 percent, respectively, a year ago. Selling, general and administrative expense (SG&A) increased 23 percent to $388.2 million.
“The increases we have seen in SG&A for the year are due primarily to planned increases in marketing investment as well as higher year-over-year variable compensation,” Miller said. “However, the compensation expense is driven by the timing of recognition and is expected to decline considerably in the third quarter compared with the prior year, bringing the total year-over-year SG&A down to a level closer to where we expect on a full-year basis.”
On a company-wide basis, GAAP income from continuing operations was $336.2 million, or $5.88 per diluted share, compared with $178.5 million, or $3.15 per diluted share, for the first six months of fiscal 2020. Excluding impairment, restructuring and other non-recurring items, non-GAAP adjusted earnings were $344.5 million, or $6.04 per diluted share, compared with $191.4 million, or $3.38 per diluted share, last year.
The Company now expects Hawthorne sales to increase 30 to 40 percent for fiscal 2021. While it reaffirmed its sales outlook for the U.S. Consumer segment of 4 to 6 percent growth, the Company said sales growth in the segment continues to trend above that level and believes upside to be possible on a full-year basis. The gross margin rate is now expected to decline 175 to 225 basis points with the added downward pressure due to higher commodity and distribution costs. All other aspects of its fiscal 2021 guidance were reaffirmed, although management said it expected to provide an update on its full-year expectations in early June.
“We continue to see tremendous momentum in all aspects of the business, and we are extremely optimistic in our ability to drive another year of record results,” Hagedorn said. “Obviously, consumer activity in May is extremely important, and it is historically one of the most critical months of the lawn and garden season. That said, we are encouraged by the level of consumer participation we have been seeing so far this season and are optimistic that consumers will remain engaged throughout the season.”
Conference Call and Webcast Scheduled for 9 a.m. ET Today, May 5
The Company will discuss results during a webcast and conference call today at 9:00 a.m. ET. To participate in the conference call, please call 1-800-289-0438 (Confirmation Code: 5691876). A replay of the call can be heard by calling 1-888-203-1112. The replay will be available for 15 days. A live webcast of the call and the press release will be available on the Company’s investor relations website at http://investor.scotts.com. An archive of the press release and any accompanying information will remain available for at least a 12-month period.
With approximately $4.1 billion in sales, the Company is one of the world’s largest marketers of branded consumer products for lawn and garden care. The Company’s brands are among the most recognized in the industry. The Company’s Scotts®, Miracle-Gro® and Ortho® brands are market-leading in their categories. The Company’s wholly-owned subsidiary, The Hawthorne Gardening Company, is a leading provider of nutrients, lighting and other materials used in the indoor and hydroponic growing segment. For additional information, visit us at www.scottsmiraclegro.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:
- The ongoing COVID-19 pandemic could have a material adverse effect on the Company’s business, results of operation, financial condition and/or cash flows;
- Compliance with environmental and other public health regulations or changes in such regulations or regulatory enforcement priorities could increase the Company’s costs of doing business or limit the Company’s ability to market all of its products;
- Damage to the Company’s reputation or the reputation of its products or products it markets on behalf of third parties could have an adverse effect on its business;
- If the Company underestimates or overestimates demand for its products and does not maintain appropriate inventory levels, its net sales and/or working capital could be negatively impacted;
- If the Company is unable to effectively execute its e-commerce business, its reputation and operating results may be harmed;
- 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;
- Climate change and unfavorable weather conditions could adversely impact financial results;
- Certain of the Company’s products may be purchased for use in new or emerging industries or segments and/or be subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations and consumer perceptions;
- The Company’s operations may be impaired if its information technology systems fail to perform adequately or if it is the subject of a data breach or cyber-attack;
- The Company may not be able to adequately protect its intellectual property and other proprietary rights that are material to the Company’s business;
- In the event the Third Restated Marketing Agreement for consumer Roundup products terminates, or Monsanto’s consumer Roundup business materially declines the Company would lose a substantial source of future earnings and overhead expense absorption;
- Hagedorn Partnership, L.P. beneficially owns approximately 25% of the Company’s common shares and can significantly influence decisions that require the approval of shareholders;
- Acquisitions, other strategic alliances and investments could result in operating difficulties, dilution and other harmful consequences that may adversely impact the Company’s 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.
Executive Vice President
Investor Relations & Corporate Affairs
ScottsMiracle-Gro Announces Record Second Quarter Results; Sales Increase 32% Driven by Strong Demand in Both Major Segments
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