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MARYSVILLE, Ohio – The Scotts Miracle-Gro Co. today reported that its first-quarter adjusted loss was in line with last year due mostly to strong expense control throughout the Company. Sales also were in line with last year, while consumer purchases of the Company's products at its major retail partners increased 13 percent during the quarter with improvements in nearly every major product category.
"We're pleased with our first-quarter results and encouraged that they are better than we previously expected," said Jim Hagedorn, chairman and chief executive officer. "Typically, our first-quarter loss increases each year due to higher expenses that are not offset until later in the year. Primarily due to cost controls associated with our profit improvement plan, Project Excellence, our ability to keep the seasonal loss in line with last year signals a good start to 2006.”
For the first quarter ended Dec. 31, 2005, Scotts Miracle-Gro Co. reported an adjusted net loss, of $52.7 million, including restructuring and other charges, compared with an adjusted net loss of $62.7 million for the same time last year. In the first quarter, the company reported a $4.7 million restructuring charge related to Project Excellence as well as a $1 million impairment charge related to a trade name in the U.K. business. In late December, the company said it expected that adjusted net loss in the quarter to be 15 to 20 percent greater than the same period last year.
Hagedorn says the company also is pleased to see that consumers remained “engaged in the lawn and garden category even during the slow part of the season.” Increased planned marketing spending on new television commercials and new product initiatives are expected to create 10- to 11-percent sales growth and 20- to 22-percent adjusted net earnings for the full year. Part of the increased advertising spending is likely to come from reductions in health care costs. Scotts announced a healthy workforce plan (part of Project Excellence) in late 2005 that includes a no-smoking policy. Health care cost savings expected from the program could boost advertising from 5.6 percent of sales to 7 percent of sales for this fiscal year, according to AdAge magazine.
For the first quarters, sales for the company’s North America business increased 9 percent to $125.6 million versus $115.2 million for last year’s comparable period. The gain was primarily attributed to the acquisition of Morning Song, a wild bird food business the company acquired in November. Scotts LawnService also had a strong finish to its season with revenue up 13 percent for the quarter to $23.6 million, compared with $20.9 million last year. Gross margin was 21.4 percent compared to 24.8 percent a year earlier. The decline was primarily due to raw material and fuel increases that are not yet offset by price increases that took effect Jan. 1, 2006.
Scotts also has commenced its five-year $500 million share repurchase program during the quarter and has acquired more than 270,000 shares on a year-to-date basis. The company anticipates regular purchases in the open market and will allocate approximately $100 million to the program in fiscal 2006.
"As we approach our peak season, we are very pleased with the cost controls that we have put in place," said Chris Nagel, chief financial officer. "Our first quarter results suggest another strong year that will allow us to continue to return capital to shareholders while further enhancing shareholder value."
The company noted that it may be required to record a liability between $90 million and $120 million as a cumulative effect adjustment for the change in accounting for stock options when it files its Form 10-Q next month with the Securities and Exchange Commission. FASB Statement 123(R), which became effective for ScottsMiracle-Gro in fiscal 2006, requires stock options to be classified as a liability if they can be settled in cash under any circumstances, including a change in control. The company’s 1996 option plan, which has 3.8 million options outstanding, contains a provision for the immediate vesting of these options upon change in control and allows for the settlement of these options in cash or stock as determined by the option holder.