The Scotts Miracle-Gro Co., Marysville, Ohio, reported net income of $225.9 million ($3.94 per diluted share) on net sales of $1.61 billion for the third-quarter ending July 3, 2021, compared to the year-ago $203.3 million ($3.55 per share) and $1.49 billion, respectively. Adjusted EBITDA was $357.1 million, up from $345.1 million.
The company noted that second-quarter sales were up 8 percent, driven by its specialty Hawthorne Gardening Co. segment, which saw sales growth of 48 percent. While the U.S. Consumer sales declined 4 percent, they were still up for the year-to-date by 19 percent.
“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 CEO. “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.” The company noted that the year-ago quarter included six more days in the peak lawn and garden season.
“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.”
The company said going forward it expects to add $20 million in annualized sales from the recent purchase of HydroLogic Purification Systems, Santa Cruz, Calif. (see related story).
Nine-month net income was $561.3 million ($9.81 per share) on net sales of $4.19 billion, up from the year-ago $384.4 million ($6.76 per share) and $3.24 billion, respectively. Adjusted EBITDA was $911.7 million, up from $704.7 million.
Scotts is maintaining its guidance of 17-19 percent sales growth with the U.S. Consumer segment expected to grow 7-9 percent in fiscal 2021 and Hawthorne sales expected to increase 40-45 percent. Guidance for non-GAAP adjusted earnings per share was also reaffirmed in a range of $9.00-$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 CFO. “However, we’re finding offsets to that pressure that are allowing us to maintain our earnings guidance on a full-year basis.”
Scotts is planning to sell about $400 million of bonds to provide greater liquidity, added Miller in the company’s earnings call. “We currently are contemplating another bond offering to lock in longer-term bonds, probably with a 10- to 12-year maturity, at roughly 4 percent,” Miller said. “This will allow for flexibility on liquidity and lock-in strong borrowing rates for the next decade.”
“Like a lot of consumer companies, the cost pressures we’re seeing from commodities are starting to feel unrelenting,” said CEO Hagedorn, who said the company may take a second price increase in January, depending on what happens with commodities.
“As we look ahead to next year, only about 25 percent of our costs are locked in right now,” said Miller. “That’s lower than normal for two reasons. First, it’s been harder to lock in rates on some commodities, especially resin. And second, we’ve paused our hedging effort for a few weeks with a hope of seeing some relief. I’ll reinforce Jim’s point that our goal is to take enough pricing for fiscal 2022 to offset the commodity pressure.”
Asked about urea, Hagedorn added that the company likes to be around 50 percent hedged, but has chosen not to do that. He said he expects prices to generally soften, and that the company is monitoring that right now.
Urea, diesel, and resin are among the major commodities purchased by Scotts.
| ($ millions) | 3Q-21 | 3Q-20 | YTD-21 | YTD-20 |
| Net Sales | ||||
| U.S. Consumer | 1,046 | 1,093 | 2,828 | 2,372 |
| Hawthorne | 422 | 286 | 1,095 | 686 |
| Profit (Non-GAAP) | ||||
| U.S. Consumer | 264 | 314 | 746 | 648 |
| Hawthorne | 52 | 38 | 134 | 74 |