Scotts Reports Major Impairments; Company Upbeat for 2019

Two major impairments weighed on Scotts Miracle-Gro Co.’s fourth-quarter and full-year results ending Sept. 30, 2018. The company took a $94.6 million non-cash impairment related to goodwill in its Hawthorne segment and a $20 million charge in discontinued operations for a litigation matter related to its previously divested wild bird food business.

Scotts reported a fourth-quarter net loss of $146.9 million ($2.65 per diluted share) on net sales of $433.9 million, compared to a year-ago loss of $33.4 million ($0.57 per share) and $376.7 million, respectively. The company had an adjusted net loss of $41.6 million ($0.75 per share), down from a loss of $14.9 million ($0.26 per share). Adjusted EBITDA was $400,000, down from $5.5 million.

The company posted full-year net income of $63.7 million ($1.12 per share) on sales of $2.66 billion, down from the prior year $218.8 million ($3.63 per share) and $2.64 billion, respectively. Adjusted net income was $211.6 million ($3.71 per share) down from $236.9 million ($3.94 per share). Adjusted EBITDA was $482 million, down from $560.5 million.

“There is little doubt that fiscal 2018 was one of our most challenging years in recent memory,” said Jim Hagedorn, Scotts chairman and CEO. “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 in 2019.”

Hagedorn said the integration of Sunlight Supply remains on track, and the company expects to achieve at least $35 million in synergies. “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 of this business.” Sales were up for Hawthorne, but profits were down.

For fiscal 2019, Scotts is providing guidance of projected sales growth of 10-11 percent, assuming 1-2 percent within U.S. Consumer and 9 percent from Hawthorne. Adjusted EPS is expected to be $4.10-$4.30. The projection was slightly below analyst estimates, which averaged $4.25, according to Bloomberg, which also noted that Scotts’ fourth-quarter adjusted net loss exceeded the analyst range of $0.57-$0.74.

Despite these misses and the impairments, Walls Street was good to Scotts, with shares moving up 6.8 percent to close Nov. 7 at $75.77 from the prior day $70.90.

Scotts has approved the payment of a cash dividend of $0.55 per share. The first quarter dividend is payable on Dec. 10 to shareholders of record as of Nov. 26.