While Scotts Miracle-Gro Co. reported larger losses in the first quarter ending Jan. 1, 2011 than for the year-ago quarter, the company was buoyed by an 11 percent increase in consumer purchases of its branded products at its largest retail partners, as well as 12 percent sales growth in its lawn care business. Scotts says it continues to expect sales growth from continuing operations of 4-6 percent for the fiscal year, with double-digit earnings per share growth.
Scotts said consumer support is broad-based, with positive Point of Sales (POS) growth in 48 states and double-digit POS growth in 34, with Canada and the U.K. also seeing double-digit improvements.
Scotts also noted that for its more sensitive commodities, which include urea, it has locked in more than 60 percent of its costs. Chairman and CEO James Hagedorn told analysts that urea is pretty stable and that he thinks there is a lot of supply on the urea side. He said the company has locked in its own sales prices at a 1-2 percent increase and expects to gain market share this year.
Scotts reiterated that given the seasonal nature of the lawn and garden market, it historically reports a net loss for the fiscal first quarter. First-quarter losses were up 18 percent to $67.9 million ($1.02 per diluted share) on sales of $230.2 million, compared to the year-ago loss of $57.7 million ($.88 per share) on sales of $252.4 million.
There were other reasons for the larger losses, including selling, general, and administrative expenses, which were up 13 percent, to $143.2 million from the year-ago $126.3 million. About half of this increase was due to severance costs, primarily driven by the departure of former President, CEO, and Board Member Mark Baker (GM Nov. 1, 2010), as well as the elimination of a handful of other vice president-level roles, the company told analysts. The company also said it opened two more regional offices and invested in more consumer research.
Hagedorn told analysts that this year it did not have as many debt concerns and had more financial flexibility, so it was able to accelerate some investment to get in front of the season.
Overall, operating losses at its largest segment, Global Consumer, grew 36 percent, to $55.1 million on sales of $188.8 million, versus the year-ago loss of $40.4 million on sales of $214 million. While Scotts LawnService sales were up 12 percent, to $37.1 million from the year-ago $33 million, it was still in the loss column though those results improved 40 percent, to $4.5 million from the year-ago loss of $7.5 million.
Scotts said it is on track to sell the significant majority of its Global Professional business to Israel Chemicals Ltd. for US$270 million (GM Dec. 13, 2010) in the second quarter. The unit was treated as discontinued for the first quarter, reporting first-quarter losses of $1.2 million, an improvement over the year-ago loss of $7.6 million.
In other news, Scotts said it is launching an exclusive line of products, called Garden Pro, for its independent buyers.