The
Scotts Miracle-Gro Co., Maryville, Ohio, reported a loss for the quarter ending
Jan. 1, 2022, but said its U.S. Consumer segment exceeded expectations and the
company upgraded guidance for the unit.
Scotts reported a company-wide net loss of $50 million ($0.90 per diluted share) on net sales of $566 million, compared to the year-ago income of $25.2 million ($0.43 per share) and $748.6 million, respectively. Adjusted EBITDA was a negative $8.5 million, down from the year-ago positive $75.5 million.
U.S.
Consumer profit dropped 76 percent to $10.7 million on sales of $342.4 million,
down from the year-ago $45.3 million and $408.2 million, respectively. While
down, Scotts said this was only the second time the segment has recorded a
first-quarter profit.
Hawthorne reported a first-quarter loss of $5.3 million on sales of $190.6 million, compared to the year-ago income of $40.4 and $309.4 million, respectively. On Jan. 4, Scotts said it was maintaining its full-year company-wide outlook for adjusted earnings per share ($8.50-$8.90 per share) despite a greater-than-expected decline in Hawthorne sales for the fiscal first quarter (GM Jan. 7, p. 25), citing a slowdown in the cannabis market and supply chain disruptions.
“The U.S.
Consumer segment continues to exceed our expectations and got off to a good
start, especially given the difficult comparison from the 147 percent growth
the segment reported in the first quarter a year ago,” said Jim Hagedorn,
Chairman and CEO. “Consumer purchases at our largest retail partners increased
3 percent in units for the quarter and 9 percent in dollars against 40 percent
growth for each measure a year ago. The continued level of consumer and
retailer support leaves us optimistic about the strength of the segment as we
prepare for the upcoming lawn and garden season.”
Scotts said the better-than-expected result in U.S. Consumer, coupled
with additional pricing actions that will take effect in the third quarter, is
allowing it to increase full-year sales guidance in the segment to a range of
plus 2 percent to minus 2 percent. This compares to a previous range of flat to
minus 4 percent.
“While
Hawthorne sales declined due to broader market conditions, we made two
important acquisitions (GM Jan. 7, p. 27) during the quarter and took
several steps to strengthen the business when growth returns,” added Hagedorn.
“We have told shareholders for years that our results in this segment could be
choppy at times, but our long-term optimism about the industry, and our
confidence in the Hawthorne business, is unchanged.”
Separately,
Scotts announced plans to consolidate U.S. lighting manufacturing for Hawthorne
into a single location, moving production from Vancouver, Wash., to Southern
Calif. It will also close the Santa Cruz, Calif., manufacturing facility of the
recently acquired HydroLogic Purification Systems (GM Aug. 6, 2021) and move that work to Santa Rosa, Calif. The
company said it is also consolidating distribution on the East Coast to a
facility it recently built in New Jersey to meet expected demand in new
markets. A restructuring charge of up to $5 million is expected to be recorded
in the second quarter and will be excluded from the company’s full-year
adjusted results.
The company
estimates that the restructuring has resulted in the elimination of roughly 200
positions. “While the business decision was easy, it is never a good day when
we have to part with valued members of the team,” said Christopher Hagedorn,
Executive Vice President and Division President of Hawthorne. “We did
everything we could to provide them a soft landing and I sincerely wish them
well moving forward.”
“This
consolidation has been under consideration for months and, given the current
market conditions and our strong inventory position, we chose to make these
moves now with limited impact on the business,” said CFO Cory Miller. “As
important, the consolidation of our manufacturing footprint is expected to
dramatically lower the per-unit price of some of our most important LED
lighting fixtures, which we believe will strengthen Hawthorne’s competitive
position in the years to come.”
Miller told
analysts on Feb. 1 that for the year, the company was 70 percent locked in on
commodities, with that slightly behind normal due to lumber vendors not wanting
to lock in long-term contracts.
“On
everything else, we are actually in good shape including urea where we are
nearly 80 percent locked in for the year,” Miller said. “The better news is we
are starting to see some relief. Resin has been retreating for a couple of
months now. Urea has begun to do the same.” He added that he was optimistic the
pricing moves the company has taken would offset these commodity headwinds on a
full-year basis.
Scotts
continues to see a very good M&A pipeline, and has budgeted some $200
million for future transactions over the balance of 2022.
