ScottsMiracle-Gro Reports First Quarter Results
- Early Season Lawn and Garden Performance In-line with Expectations
- Company Reaffirms Full-year Non-GAAP Adjusted Gross Margin Improvement of 250 bps and Full-year Non-GAAP Adjusted EBITDA of $575 million
- First Quarter GAAP Loss of $1.42 Per Share; Non-GAAP Loss of $1.45 Per Share
MARYSVILLE, Ohio, Feb. 07, 2024 (GLOBE NEWSWIRE) — The Scotts Miracle-Gro Company (NYSE: SMG), the world’s largest marketer of branded consumer lawn and garden as well as a leader in indoor and hydroponic growing products, today announced its results for the first quarter ended December 30, 2023.
“Our Q1 results further indicate that we’re making measurable progress on a number of important fronts and setting ourselves up well ahead of the peak spring season load-in with retailers,” said Jim Hagedorn, CEO, chairman and president of ScottsMiracle-Gro.
As we look to the year ahead, we are focused on driving top-line growth, tightly controlling expenses and delivering on our targets for free cash flow generation, gross margin improvement and aggressive debt paydown.
Jim Hagedorn, CEO
We are reaffirming our guidance of high-single digit growth in our consumer business, and in Hawthorne, we continue to take actions to ensure the business remains cash flow positive in fiscal 2024 and a major contributor to our debt paydown.
First Quarter Details
For the quarter ended December 30, 2023, total Company sales declined 22 percent to $410.4 million from $526.6 million a year ago. Due to seasonality, the first quarter typically represents less than 15 percent of full-year sales.
U.S. Consumer net sales decreased 17 percent to $306.7 million from $369.0 million in the same period last year, driven by the normalization of shipment phasing to pre-pandemic levels. Hawthorne segment sales decreased 39 percent to $80.1 million compared to $131.5 million last year. The decline was largely due to continued pressure on the indoor and hydroponic industry as a whole and the Company’s purposeful actions to restructure the business, including a focus on fewer but more profitable brands.
GAAP and non-GAAP adjusted gross margin rates for the quarter were 15.2 percent and 13.7 percent, respectively. These compare to 18.2 percent and 20.1 percent, respectively, in the prior year. The declines were due primarily to adjustments in the phasing of shipments which reduced fixed cost leverage. Pricing and sales of higher cost raw materials drove the remainder of the change. Those pressures were partially offset by distribution savings from Project Springboard.
SG&A was down 11 percent to $114.8 million during the quarter compared to $128.5 million a year ago, and down 26 percent compared to the first quarter of fiscal 2022, primarily driven by Project Springboard actions. The Company expects to recognize more than 80 percent of the final $100 million of Project Springboard savings through the end of fiscal 2024, directing a portion of the incremental savings to reinvestment in the business.
“The diligence and focus of our associates on cost savings while maintaining excellence in operations has allowed the Company to overachieve our total Project Springboard savings target of $300 million over three phases,” said Matt Garth, chief administrative and financial officer. “We plan to invest a meaningful portion of the incremental savings directly into our marketing and selling efforts this season.”
Interest expense during the quarter was flat compared to the same quarter last year with higher interest rates offsetting the benefit of a lower debt balance. The Company’s average net debt to adjusted EBITDA leverage ratio at the end of the quarter was 7.20 times, well within the covenant maximum of 8.25 times. The maximum leverage ratio under the revised covenants decreases to 7.75 in the second quarter, 6.50 in the third quarter and 6.00 in the fourth quarter of the fiscal year.
The Company reestablished a 50-percent interest in its Bonnie Plants, LLC live goods joint venture during the quarter. GAAP equity in loss of unconsolidated affiliates, which represents our share of the results of the joint venture, includes a pre-tax impairment charge of $10.4 million recorded during the quarter.
The Company reported a GAAP net loss of $80.5 million, or $1.42 per share, compared with a prior year loss of $64.7 million, or $1.17 per share. Non-GAAP adjusted loss, which excludes impairment, restructuring and other non-recurring items, was $82.2 million, or $1.45 per share, for the quarter, compared with a loss of $56.4 million, or $1.02 per share, for the same period last year.
Fiscal 2024 Outlook
The Company reaffirms the non-GAAP fiscal 2024 guidance provided last quarter with the exception of Hawthorne net sales. Hawthorne is aggressively pursuing its Signature product strategy to focus on fewer but more profitable brands. The full-year impact on segment net sales cannot yet be estimated with rapid changes underway though the segment is expected to be cash flow positive for the full year. The Company’s primary objective remains restoring a strong balance sheet by generating $575 million adjusted EBITDA and free cash flow of $560 million to deliver the remainder of $1 billion in free cash flow over two years. The Company will further outline its expectations for fiscal 2024 during today’s call.
Conference Call and Webcast Scheduled for 9 a.m. ET Today, February 7
The Company will discuss results during a video presentation via webcast today at 9:00 a.m. ET. To watch the Company presentation and listen to the question-and-answer session, please register in advance at this webcast link. For those planning to participate in the question-and-answer session that follows the video presentation, please register for the webcast to view the presentation in addition to registering in advance via this audio link to receive call-in details and a unique PIN. A replay of the conference call will also be available on the Company’s investor website where an archive of the press release and any accompanying information will remain available for at least a 12-month period.
