MARYSVILLE, Ohio, Nov. 07, 2018 (GLOBE NEWSWIRE) -- PRESS RELEASE -- The Scotts Miracle-Gro Company, a marketer of branded consumer lawn and garden products, has announced fiscal year 2018 financial results in line with the company’s guidance and highlighted by strong operating cash flow.
For the year ended Sept. 30, 2018, company-wide reported net sales increased one percent to $2.66 billion. GAAP income from continuing operations was $2.23 per share compared with $3.29 per share in the prior year. Non-GAAP adjusted earnings, which exclude impairment, restructuring and other one-time charges, were $3.71 per share compared with $3.94 per share a year ago. The non-GAAP adjusted results are the basis of the company’s earnings guidance. Operating cash flow for the year was $343 million compared with $363 million a year earlier.
“There is little doubt that fiscal 2018 was one of our most challenging years in recent memory,” said Jim Hagedorn, chairman and chief executive officer. “Our U.S. Consumer business, however, had a strong second half following unfavorable early season weather. The Hawthorne team also made substantial progress in recent months, integrating the Sunlight acquisition to enable strong benefits for 2019.”
“Across the entire organization we have been building toward a solid recovery in 2019. Our goal for 2019 is to deliver sales growth in a range of 10 to 11 percent resulting in non-GAAP adjusted earnings in the range of $4.10 to $4.30. We expect that growth to be driven by the full-year impact of the Sunlight Supply acquisition as well as pricing in our U.S. Consumer segment of roughly 3 percent. We will remain focused on continued working capital improvement as operating cash flow remains a critical performance metric for our team.”
Fourth Quarter Details
Company-wide sales increased 15 percent to $433.9 million. Sales in the U.S. Consumer segment decreased 2 percent in the quarter to $252.6 million due primarily to focused inventory productivity efforts with certain key retail accounts. The segment delivered segment profit of $5.3 million compared with a loss of $0.3 million a year earlier.
Hawthorne reported sales of $152.2 million, a 65 percent increase from the same period a year ago, driven by acquisitions. Excluding acquisitions, sales decreased 15 percent due to declines in the North American hydroponic business partially offset by growth in the European professional greenhouse market and AeroGrow. Hawthorne reported a segment profit of $0.5 million in the quarter compared with $9.0 million a year earlier.
For the quarter, the company-wide GAAP and non-GAAP adjusted gross margin rates were 17.0 percent and 19.2 percent, respectively, compared with 23.4 percent a year ago. SG&A increased 6 percent to $121.5 million primarily due to increased expense related to acquisitions.
The company reported a seasonal loss from continuing operations on a GAAP basis of $130.6 million, or $2.36 per share, compared with $42.3 million, or $0.72 per share. The loss on a non-GAAP adjusted basis was $41.6 million, or $0.75 per share, compared with a loss of $14.9 million, or $0.26 per share. During the quarter the company recorded a non-cash impairment of $94.6 million related to goodwill in the Hawthorne segment. Additionally, the company recorded a charge of $20.0 million in discontinued operations for a litigation matter related to its previously divested wild bird food business.
Full Year Details
Company-wide sales increased one percent to $2.66 billion compared to $2.64 billion a year ago. Sales in the U.S. Consumer segment decreased 2 percent, to $2.11 billion, due largely to lower-than-expected sales in mass retail and focused inventory productivity efforts by key customers. U.S. Consumer segment profit was $496.6 million, a decrease of 5 percent, principally driven by lower sales and increased distribution and input costs.
Consumer purchases of the company’s products at its largest four retail partners were flat from previous year’s levels, although branded fertilizer, grass seed, growing media, mulch and rodenticide products all were higher compared with 2017.
“We were especially pleased with our branded Lawns business this year, which was supported by significant new innovation like our Turf Builder Triple Action products as well as Turf Builder Thick’R Lawn,” Hagedorn said. “While we saw a record slow start in the first half of our season across the category, we also saw a record recovery in the second half. As we prepare for next year, we remain extremely confident in the strength of our brands, as well as the level of consumer engagement and retailer support.”
Hawthorne sales increased 20 percent, to $344.9 million, driven by acquisitions. Excluding acquisitions, the business declined 27 percent on the year. Hawthorne reported an operating loss of $6.1 million, which included the dilution associated with the acquisition of Sunlight Supply.
“The integration of Sunlight Supply remains on track and we continue to expect at least $35 million in synergies from this transaction,” said Randy Coleman, chief financial officer. “While we are obviously disappointed by the performance of Hawthorne in 2018, we expect to return to growth in 2019 and remain bullish on the long-term prospects for this business.”
The GAAP and non-GAAP adjusted gross margin rates for the full year were 32.5 percent and 33.2 percent, respectively, compared with 36.8 percent a year ago. The decline was due primarily to higher-than-expected distribution costs, negative fixed cost absorption in both the U.S. Consumer and Hawthorne segments, and planned increased customer promotion and trade expense.
SG&A declined 2 percent to $540.1 million as increased expense from acquisitions was offset by other reductions including variable compensation and advertising expense.
GAAP income from continuing operations was $127.6, or $2.23 per share, compared with $198.3 million, or $3.29 per share. Non-GAAP adjusted earnings were $211.6, or $3.71 per share, compared with $236.9 million, or $3.94 per share. The full-year diluted share count was 57.1 million, compared with 60.2 million, reflecting share repurchase activity of $327.7 million for the year.
2019 Outlook
The company also provided guidance for fiscal 2019 that includes projected sales growth of 10 to 11 percent. The guidance assumes the U.S. Consumer segment will grow 1 to 2 percent with the balance, approximately 9 percent, from Hawthorne. Within the Hawthorne segment, acquisitions are expected to contribute 8 percent on a company-wide basis.
“We expect pricing will add 3 percent to the U.S. Consumer segment on a full-year basis, but also anticipate some unit decline from retailer merchandising decisions and continued inventory productivity initiatives,” Coleman said. “Additionally, the contractual changes in our Roundup marketing agreement will result in an approximate 100 basis point decline to sales in this segment on a full-year basis.”
The gross margin rate is expected to be relatively flat. SG&A is expected to grow 5 to 6 percent. Non-GAAP adjusted earnings per share are expected between $4.10 and $4.30. Operating cash flow is targeted at $290 to $300 million, which includes anticipated payments related to the conclusion of certain litigation matters.
“While we expect to see solid gross margin rate improvement in the U.S. Consumer segment, the full-year impact of the lower-margin Sunlight transaction will offset most of those gains,” Coleman said. “Throughout the organization we have also taken strong steps to overcome other expense headwinds while increasing our investment in our people and brands.”
