Scotts Miracle-Gro net sales up 7% in Q2 FY 2014

The Scotts Miracle-Gro’s net sales increased by 7 percent to $1.08 billion for its fiscal second quarter ended March 29, 2014, due to strong initial sell-in to retailers. The growth was mainly driven by strong sell-in of its consumer products in both the U.S. and Europe.

Adjusted income from continuing operations increased 38 percent during the second quarter, driven by increased sales, continued margin expansion and strong control of operating expenses. 

Fiscal year-to-date consumer purchases in the U.S. – as measured by point-of-sale data from the Company's largest retail partners – were slightly down through the end of April, below internal expectations, due primarily to poor weather and a delayed start to the season.

"It should come as no surprise that consumer activity was lighter than we had originally anticipated, but we have seen high levels of consumer purchases when the weather has cooperated," said Jim Hagedorn, chairman and chief executive officer. "We are pleased with the strong support we are seeing from our retail partners and glad to see a strong start to the season in Europe, where our business is currently trending ahead of our internal expectations.

"We remain optimistic about our prospects this season and continue to expect adjusted earnings per share of $3.05 to $3.20 for the full year."

Details for the second quarter of FY2014

Sales in the Global Consumer segment increased 9 percent to $1.05 billion during the second quarter, compared to $962.8 million during the same quarter a year ago. Strong retailer support, pricing adjustments and the acquisition of the Tomcat business drove the increase.
Scotts LawnService sales were down 12 percent to $28.9 million in the second quarter, compared to $32.9 million a year ago, primarily due to a delay in the start of the spring season. 

For the quarter, the adjusted company-wide gross margin rate was 40.1 percent, compared with 37.4 percent a year ago. The 270-basis-point improvement was primarily attributable to planned cost reductions, targeted pricing and increased sales volume due to strong sell-in to retailers.  The increased sales volume drove favorable product mix and improved leverage on fixed costs.

Selling, general and administrative expenses (SG&A) increased $6 million to $212.2 million during the second quarter, compared to $206.7 million a year ago, in line with the Company's internal expectations.

The consolidated company-wide adjusted income from continuing operations before income taxes was $211.2 million during the second quarter, compared to $154.2 million a year ago.  The operating income from the Global Consumer segment for the quarter increased 23 percent to $269.5 million, compared with $218.9 million a year ago. The Scotts LawnService segment reported operating loss of $20.3 million for the quarter, compared with a loss of $17.0 million during the same quarter a year ago.

Adjusted income from continuing operations for the second quarter increased to $136.7 million, or $2.17 per share, which excludes impairment, restructuring and other charges, as well as one-time costs related to financing.  That compares with adjusted income of $99.3 million, or $1.59 per share, last year. On a GAAP basis, income from continuing operations was $125.7 million, or $2.00 per share, compared with $99.1 million, or $1.59 per share, a year ago. 

Details for the first half year of FY2014

Net sales for the first six months of fiscal 2014 were $1.27 billion, an increase of 6 percent from $1.20 billion a year ago.  The year-over-year change was attributable to increased sales in the Global Consumer segment, primarily due to strong retailer support, targeted pricing and the acquisition of the Tomcat business.  For the first six months of the year, Scotts LawnService sales were down 3 percent, primarily due to a delayed start to the season.

The adjusted company-wide gross margin rate for the first six months increased 290 basis points to 36.8 percent, compared to 33.9 percent a year ago, primarily due to planned cost reductions, targeted pricing and increased sales volume due to strong sell-in to retailers.  The increased sales volume drove favorable product mix and improved leverage on fixed costs.

SG&A increased $6 million to $336.6 million for the first six months, in line with Company expectations. 

Adjusted income from continuing operations was $71.1 million, or $1.13 per share, for the first six months of the year, compared to $30.8 million, or $0.49 per share, during the same period a year ago.  Those results exclude impairment, restructuring and other charges, as well as one-time costs related to financing.  Including those items, reported income from continuing operations for the first six months of fiscal 2014 was $59.9 million, or $0.95 per share, compared with $30.8 million, or $0.49 per share, a year ago.