Scotts Miracle-Gro (SMG) Raises 2020 Guidance

The Scotts Miracle-Gro Company (NYSE: SMG) announced increased sales and earnings guidance based on higher demand in both its U.S. Consumer and Hawthorne segments.

For the fiscal year ending September 30, 2020, ScottsMiracle-Gro now expects company-wide sales growth of 16 to 18 percent. That compares to recently revised sales guidance provided in May of 6 to 8 percent growth. The revision is due mainly to stronger growth in the U.S. Consumer segment, where the Company now expects growth of 9 to 11 percent, compared with its previous range of 1 to 3 percent. Hawthorne sales likewise continue to exceed expectations as the Company now expects sales growth of 45 to 50 percent for the full year, compared with a recent increase in guidance of 30 to 35 percent.

As a result, ScottsMiracle-Gro now expects adjusted non-GAAP earnings in a range of $5.65 to $5.85 per share. This compares to the previous guidance of $4.95 to $5.15 per share. Adjusted non-GAAP results exclude impairment, restructuring and other one-time expenses. For fiscal 2020 these one-time expenses include COVID-19 related incremental costs of approximately $30 to $35 million associated with premium pay adjustments that were given to front-line associates who work in the sales force as well as manufacturing and distribution facilities and certain one-time cleaning costs. (**** consensus is $5.40)

“It is both exciting and humbling to witness what is happening in our U.S. Consumer business,” said Jim Hagedorn, chairman and CEO. “Consumer purchases of our products at our largest four retail partners were up 44 percent in May, and we are now up approximately 19 percent year-to-date at the time of this announcement. An unprecedented number of consumers planting and maintaining gardens has led to a nearly 40 percent increase in consumer purchases of Miracle-Gro branded soils and more than 30 percent increase in plant food. We’ve seen a more than 50 percent increase in purchases of Ortho outdoor pest control products and nearly 40 percent increase in indoor products. In fact, with the exception of mulch – which is gaining ground but still lagging last year due to a lack of retailer promotions – we have seen strong growth in every category this year.

“Likewise, the story at Hawthorne is one of exceptional demand. Even against extremely difficult year-over-year comparisons, we continue to see strong sales growth across the product portfolio in both older markets like California and Colorado, as well as emerging ones like Michigan, Oklahoma and Florida.”

The Company said it expects its non-GAAP adjusted gross margin rate to be flat to slightly lower on the year as the strength in Hawthorne has a dilutive impact on the company-wide rate. However, both the U.S. Consumer and Hawthorne segments are expected to see year-over-year gross margin rate improvements. Hawthorne also remains on track to meet or exceed the Company’s guidance for operating margin rate – based on segment income as a percent of sales – of 10 percent.

“We’re extremely pleased with Hawthorne’s progress in driving higher profitability,” said Randy Coleman, executive vice president and chief financial officer. “Ironically, the rapid growth in Hawthorne is putting pressure on the margin rate due to the increased costs being incurred to keep up with higher-than-expected demand. What we’re seeing, however, gives us increased confidence in our long-term target of mid-teen operating margins for this business.”

Non-GAAP free cash flow, calculated as GAAP operating cash flow minus capital expenditures, is now expected to be approximately $350 million. The Company expects this level of performance despite the likelihood that it will increase year-ending inventory levels to help guard against potential supply chain disruptions in fiscal 2021.

“The results we are seeing this year could not have been achieved without the dedication of our nearly 7,000 associates,” Hagedorn said. “Front-line workers aren’t typically seen by Wall Street and the media, but they are the ones selling, manufacturing and distributing our products. In the face of a global crisis, they have stayed focused, followed safety protocols and allowed our business to thrive. Our entire management team thanks them for their efforts and, I believe, the rest of our shareholders owe them a debt of gratitude as well.”

Management will provide more commentary about its expected results at 10:20 a.m. eastern time tomorrow, June 9, 2020, during a virtual presentation as part of the William Blair & Co. 40^th Annual Growth Stock Conference. The discussion will be available on the Company’s investor relations website, http://investor.scotts.com

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