Hawthorne Sales Plunge Again – New Cannabis Ventures
Scotts Miracle-Gro Reports Second Quarter Results
- Strong first half 2024 execution has Company on pace for full-year targets
- U.S. Consumer second quarter net sales of $1.38B equal record high
- Q2 2024 GAAP gross margin of 30.4% and non-GAAP adjusted gross margin of 35.3% reflect 350 and 60 basis point improvements, respectively
- Strong free cash flow delivers net leverage of 6.95x, well below covenant maximum
- Q2 2024 GAAP EPS of $2.74; non-GAAP Adjusted EPS of $3.69 are ahead of plan
- Teams driving consumer engagement in Q3 representing 60 percent of seasonal POS
MARYSVILLE, Ohio, May 01, 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 second quarter ended March 30, 2024.
“Through the first six months of our fiscal year, we exceeded operating plan targets and made progress on the most important financial metrics driving our business,” said Jim Hagedorn, chairman, CEO and president. “We’re in a favorable position to achieve our fiscal 2024 guidance as well as meet our goals for cash flow generation, debt reduction and gross margin improvement.
“We’re a much leaner and more cost-efficient organization with a near-term focus on precision execution. At the same time, because we’ve stabilized and created financial flexibility, we can shift from crisis management to operating the business the way it should be run – from a position of strength and with a growth mindset.”
Financial Results
Second Quarter Details
For the quarter ended March 30, 2024, total Company sales were approximately flat at $1.53 billion compared to a year ago. U.S. Consumer net sales increased 2 percent to $1.38 billion from $1.36 billion in the same period last year. U.S. Consumer segment favorability was mainly driven by increased listings and early season promotions associated with the growing media category.
“With outstanding retail partnerships and execution by our team, the U.S. Consumer business delivered a strong second quarter that tied the record high for net sales set two years ago,” said Matt Garth, chief financial and administrative officer. “All of our associates are acutely focused on delivering the remainder of the year with 60 percent of POS coming in the third quarter and the heart of the lawns season still ahead of us.”
Hawthorne segment sales for the quarter decreased 28 percent to $66.4 million compared to $92.7 million last year. The decline was largely due to the Company’s previously announced focus on its proprietary Signature brands and discontinuation of its third-party distributed brands business, along with continued pressure on the indoor and hydroponic industry as a whole. During the quarter, Hawthorne announced its strategic partnership with BFG Supply to change its go-to-market approach for its higher-margin Signature portfolio and to fully exit distribution of third-party brands.
GAAP and non-GAAP adjusted gross margin rates for the quarter were 30.4 percent and 35.3 percent, respectively. These compare to 26.9 percent and 34.7 percent, respectively, in the prior year. The improvement was due primarily to the annualization of distribution savings and lower cost materials partially offset by net price decreases.
SG&A decreased 4 percent to $178.7 million during the quarter compared to $186.3 million a year ago, and declined 12.7 percent compared to the second quarter of fiscal 2022, primarily driven by annualization of Project Springboard savings.
Other expense was $10.8 million in the quarter driven by the discount on the sale of accounts receivable associated with the new Accounts Receivable Sale Agreement. Costs associated with prior years’ Accounts Receivable financing facilities were included as a component of interest expense below operating income.
Interest expense during the quarter declined 9 percent compared to the same quarter last year driven by the Company’s utilization of its Accounts Receivable facility resulting in lower debt during the period. The Company’s average net debt to adjusted EBITDA leverage ratio at the end of the quarter was 6.95 times, well within the covenant maximum of 7.75 times. The maximum EBITDA multiple under the revised leverage ratio covenants decreases to 6.50 in the third quarter and to 6.00 in the fourth quarter of the fiscal year. Going forward, the Company expects to operate well within covenant bounds.
The Company recorded pre-tax restructuring charges of $77.0 million during the quarter primarily related to the incremental contraction of the Hawthorne supply chain network.
The Company reported GAAP net income of $157.5 million, or $2.74 per diluted share, compared with $109.4 million, or $1.94 per diluted share, in the same quarter a year ago. Non-GAAP adjusted net income for the quarter, which excludes impairment, restructuring and other non-recurring items, was $211.9 million, or $3.69 per diluted share, compared with $213.8 million, or $3.78 per diluted share, for the same period last year.
Year-to-date Details
For the first six months of fiscal 2024, the Company reported sales of $1.94 billion, down 6 percent from $2.06 billion a year earlier. U.S. Consumer segment sales decreased 2 percent to $1.69 billion related to rephasing of shipments toward pre-pandemic norms. Sales for the Hawthorne segment decreased 35 percent to $146.6 million.
The company-wide gross margin rate was 27.2 percent on a GAAP basis and 30.7 percent on a non-GAAP adjusted basis compared with rates of 24.7 percent and 31.0 percent, respectively, a year ago. SG&A decreased 7 percent to $293.5 million. The Company expects to recognize more than 80 percent of the final $100 million of Project Springboard savings by the end of fiscal 2024.
Below operating income, first-half results include a $19.1 million adjusted loss from the Bonnie JV that excludes a pre-tax impairment charge of $10.4 million recorded during the first quarter of this fiscal year. The first-half adjusted loss is comparable to the adjusted loss from the JV for the same period a year ago.
On a company-wide basis, GAAP net income was $77.0 million, or $1.34 per diluted share, compared with $44.7 million, or $0.80 per diluted share, for the first six months a year ago. Excluding impairment, restructuring and other non-recurring items, non-GAAP adjusted earnings were $129.7 million, or $2.26 per diluted share, compared with $157.4 million, or $2.81 per diluted share, last year.
Fiscal 2024 Outlook
The Company reaffirms its previously announced non-GAAP fiscal 2024 guidance. More details will be shared during today’s call, and the Company expects to provide an updated outlook in early June. The Company’s primary objective remains restoring a strong balance sheet with meaningful improvements in leverage and working capital by generating $575 million of adjusted EBITDA and free cash flow of $560 million.
Conference Call and Webcast Scheduled for 9 a.m. ET Today, May 1
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.
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