A record May helped Scotts Miracle-Gro Co., Marysville, Ohio, catch up in U.S. Consumer sales, though impairments and lower-than-expected results from its Hawthorne hydroponic unit weighed on income for the third-quarter ending June 30, 2018.
“Our U.S. core business was simply outstanding in May, with record results and positive year-over-year consumer purchases nearly every day during the month,” said Jim Hagedorn, Scotts chairman and CEO. “The fact that consumer purchases were down 12 percent entering May and were essentially flat versus year-ago levels by the end of June speaks to the resilience of our category and strength of our brands. It also speaks to the commitment of our team, as well as our consumers and retail partners.”
Third-quarter U.S. Consumer segment profits were just off 1 percent, while sales were up 1 percent. Profit was $243.1 million on sales of $810.9 million, compared to the year-ago $246.4 million and $801.4 million, respectively.
The Hawthorne segment reported a loss of $3.6 million, down from year-ago profit of $10.3 million. Sales were up 2 percent in the third-quarter, to $74.2 million from the year-ago $72.4 million.
“While we remain disappointed with sales in the Hawthorne segment, we are pleased to see the rate of decline we’ve seen this year has begun to improve recently,” Hagedorn said. “Due to regulatory changes in California and an over-production of cannabis in that state and others last year, we continue to expect to see pressure on revenue at least through the balance of the calendar year.”
“We remain confident in the revised sales and non-GAAP adjusted earnings guidance we provided in June and are optimistic that we also will report cash flow productivity of more than 100 percent for the second consecutive year,” Hagedorn continued. The guidance is for full-year sales to be flat to 2 percent higher, with adjusted earnings expected to be $3.70-$3.90 per share.
During the quarter, the company recorded a $17.5 million non-cash impairment charge related to the write-off of previously acquired customer relationship intangible assets due to the acquisition of Sunlight Supply, as well as restructuring charges of $12.9 million related to staffing reductions and facility closures.
“The integration of Sunlight into the Hawthorne operations is moving swiftly, and we are already more than halfway to our goal of achieving at least $35 million in synergies by combining our two businesses,” Hagedorn said. “While we still have a lot of work to do to finish the integration, I’m confident that our Hawthorne business will be vastly improved as a result of this transaction, and will be uniquely positioned to benefit from the rapidly evolving market place for hydroponic products.”
The company also recorded a $65 million charge in discontinued operations related to recent developments in an unresolved class-action lawsuit filed in 2012 in connection with the sale of wild bird food products that were the subject of a voluntary recall in 2008 by the company’s previously sold and discontinued wild bird food business. The company continues to dispute the allegations in the case.
Scotts reported third-quarter net income of $82.8 million ($1.47 per diluted share) on net sales of $994.6 million, down from the year-ago $151.9 million ($2.53 per share) and $973.4 million, respectively. Adjusted EBITDA was $253.7 million, down from $288.1 million.
Nine-month net income was $210.6 million ($3.67 per share) on net sales of $2.23 billion, down from the year-ago $252.3 million ($4.16 per share) and $2.26 billion, respectively. Adjusted EBITDA was $481.8 million, down from $555 million.
Nine-month U.S. Consumer profit was $491.4 million on sales of $1.86 billion, down from the year-ago $521.8 million and $1.9 billion, respectively. Hawthorne reported a loss of $6.6 million on sales of $192.8 million, versus the year-ago profit of $26.5 million and $195.2 million, respectively.