Company announces acquisition to bolster the Hawthorne portfolio
- Company-wide third quarter sales increase 8% driven by Hawthorne growth of 48%
- U.S. Consumer sales decline 4% in Q3; Remain 19% higher year-to-date
- Consumer POS dollars up 4% entering August driven by POS unit growth of 8%
- Q3 GAAP EPS increases 12% to $4.00; Non-GAAP adjusted EPS up 5% to $3.98
- HydroLogic acquisition will add approximately $20 million in sales
MARYSVILLE, Ohio, Aug. 04, 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 third quarter sales growth of 8 percent driven by a 48 percent increase in the Hawthorne segment.
The Company reaffirmed its full-year guidance for its U.S. Consumer and Hawthorne segments as well as its outlook for adjusted earnings per share.
Separately, the Company announced a further strengthening of the Hawthorne Gardening Company portfolio with the acquisition of HydroLogic Purification Systems, a leading provider of products, accessories and systems for water filtration and purification. HydroLogic will add approximately $20 million in annualized sales.
“Our results in the third quarter continue to speak to the strength of our brands and the execution of our strategy,” said Jim Hagedorn, chairman and chief executive officer. “Despite difficult year-over-year comparisons, we saw record Q3 sales at Hawthorne with growth in all categories. Our U.S. Consumer business continued to excel despite a modest decline in sales compared with last year’s record levels.
“Even in the face of increasing distribution and commodity costs that are putting pressure on our gross margin rate, we remain on track to deliver the updated full-year guidance we provided in early June, which would result in both record sales and adjusted earnings.”
Third quarter details
For the period ended July 3, 2021, company-wide sales increased 8 percent to $1.61 billion. U.S. Consumer segment sales declined 4 percent to $1.05 billion from $1.09 billion. Hawthorne segment sales increased 48 percent to $421.9 million compared with $285.7 million. Due to the Company’s fiscal calendar, the third quarter of 2021 began six days later than the third quarter of fiscal 2020, and those six days fell during the peak lawn and garden selling season. The impact of the shift was a decline in sales for the quarter of approximately $115 million on a company-wide basis.
Segment income decreased 16 percent for U.S. Consumer to $264.4 million and improved 37 percent for Hawthorne to $51.9 million.
“Hawthorne saw growth in every product category and every major geographic market,” Hagedorn said. “We continue to enjoy tremendous success, especially with our signature brands, as growers see the benefit of our innovation and full-service approach. North America lighting continues to be a strong driver of growth with sales up 77 percent in the quarter. Nutrient sales increased 54 percent, and growing media improved 33 percent. More importantly, our brands – Gavita, General Hydroponics, Mother Earth and Botanicare – significantly outperformed our distributed brands in each of their respective categories.
“In the U.S. Consumer business, consumer purchases of our products, as measured in dollars, declined 1 percent in the quarter but remain up 4 percent on a year-to-date basis. As measured in units, which aligns more closely with our sales and is a more accurate reflection this year of consumer engagement, POS was up 5 percent in the quarter and is up 8 percent year-to-date.”
For the quarter, the company-wide GAAP and non-GAAP adjusted gross margin rates were 30.7 percent and 30.8 percent, respectively. Both compare to 35.3 and 36.1 percent, respectively, in the prior year. The declines were due primarily to higher distribution and commodity costs as well as segment mix due to the growth in the lower-margin Hawthorne segment. Those pressures were partially offset by higher pricing.
SG&A decreased 18 percent to $194.1 million primarily due to lower accruals for annual incentive compensation payments.
Interest expense increased $1.6 million on a year-over-year basis to $21.9 million, driven by an increase in borrowings. The Company said its debt-to-EBITDA ratio at the end of the quarter was approximately 2.19 times.
GAAP income from continuing operations was $229.8 million, or $4.00 per diluted share, compared with $204.3 million, or $3.57 per diluted share, in the prior year. Non-GAAP adjusted earnings, which exclude impairment, restructuring and other non-recurring items, were $228.6 million, or $3.98 per diluted share, compared with $216.8 million, or $3.80 per diluted share.
Year-to-date details
Company-wide sales for the first nine months increased 29 percent to $4.19 billion compared with $3.24 billion a year ago. Sales in the U.S. Consumer segment increased 19 percent, to $2.83 billion. Hawthorne sales increased 60 percent to $1.10 billion.
The GAAP gross margin rate on a year-to-date basis was 32.1 percent. The non-GAAP adjusted rate was 32.6 percent. These compare with 34.9 and 35.4 percent, respectively, last year. The reasons for the year-to-date decline are consistent with the factors that drove third quarter results with the added benefit of improved fixed cost leverage. SG&A was $582.3 million, a 5 percent increase from 2020, driven primarily by higher investment in both U.S. Consumer and Hawthorne offset by lower year-to-date accruals for variable compensation.
Interest expense decreased $5.7 million to $57.3 million due to lower average interest rates, partially offset by an increase in borrowings.
GAAP income from continuing operations was $566.0, or $9.90 per diluted share, compared with $382.8 million, or $6.74 per diluted share, in the prior year. Non-GAAP adjusted earnings, which exclude impairment, restructuring and other non-recurring items, were $573.1 million, or $10.04 per share, compared with $408.2 million, or $7.20 per diluted share.
Full-year outlook
The Company maintained its guidance of 17 to 19 percent sales growth with the U.S. Consumer segment expected to grow 7 to 9 percent in fiscal 2021 and Hawthorne sales expected to increase 40 to 45 percent. Guidance for non-GAAP adjusted earnings per share was also reaffirmed in a range of $9.00 to $9.30. The gross margin rate is now expected to decline 250 to 275 basis points, with SG&A expected to be flat to slightly down on a full-year basis.
“The continued pressure from commodity prices is likely to result in a lower gross margin rate than we expected when we last updated our guidance in June,” said Cory Miller, senior vice president and interim chief financial officer. “However, we’re finding offsets to that pressure that are allowing us to maintain our earnings guidance on a full-year basis.”
Acquisition of HydroLogic
HydroLogic Purification Systems, based in Santa Cruz, Calif., is a leading provider of products, accessories and systems for water filtration and purification in the cannabis industry. HydroLogic will expand the Hawthorne signature brand portfolio with water filtration and purification products. Commercial growers comprise approximately half of HydroLogic sales and typically require custom builds for their water purification and filtration needs.
Under the terms of the deal, Hawthorne will acquire the business assets and operations of HydroLogic for $65 million. Hawthorne intends to retain the Santa Cruz facility, which includes distribution and assembly.
“This is a small but strategic acquisition that strengthens our portfolio of signature brands and our relationship with commercial growers,” Hagedorn said. “We continue to pursue an active pipeline of M&A opportunities for both Hawthorne and our U.S. Consumer business and are optimistic we’ll have other transactions to announce in the months ahead.”
Conference Call and Webcast Scheduled for 9 a.m. ET Today, August 4
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 1-866-337-5532 (Confirmation Code: 2106695). 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.
