Scotts Miracle-Gro Announces Record Full-Year Financial Results

MARYSVILLE, Ohio – The Scotts Miracle-Gro Co., a leading marketer of branded consumer lawn and garden products, today announced fiscal 2005 financial results that include a 15-percent increase in sales and a 12-percent improvement in adjusted net income to set new record highs. The company also said its board of directors has approved a $500 million share repurchase program as well as a 2-for-1 stock split.

"These announcements reinforce the ongoing momentum of our business as well as our confidence that ScottsMiracle-Gro can continue to improve," said Jim Hagedorn, chairman and chief executive officer. "Nearly all aspects of our business are strong. As a result, we continue to outperform our competitors, our financial results continue to improve, and our free cash flow is allowing us to return cash to shareholders in a significant way."

The company's share repurchase plan, which is authorized for five years, will commence immediately with purchase of ScottsMiracle-Gro shares in open market transactions. The company currently anticipates allocating about $100 million per year on the program, which will begin to offset earnings per share dilution related to stock options. The additional shares will be distributed Nov. 9, 2005 for shareholders of record Nov. 2. At the end of fiscal 2005, the company had approximately 34.3 million diluted shares outstanding.

FULL YEAR RESULTS. For fiscal 2005, which ended Sept. 30, companywide sales improved nearly 15 percent to $2.3 billion. Excluding the impact of the Smith & Hawken acquisition, sales increased 7 percent. Sales for the core North American business improved 6 percent for the year to $1.6 billion. Consumer purchases of the company's products in the United States increased 7 percent, including a 14 percent increase in growing media. Consumer purchases for Ortho and Roundup both increased 9 percent, and Lawns and Plant Food increased 3 percent.

Scotts LawnService, which continues to benefit from record customer retention rates, reported sales of $160 million, an 18-percent increase from 2004. International sales increased nearly 6 percent to $414 million, a 1-percent increase when excluding the impact of foreign exchange rates.

Gross margins for the year declined 40 basis points to 37.1 percent, but were flat year-over-year excluding Smith & Hawken. Net Roundup commission was a loss of $5.3 million, which includes a one-time charge of $45.7 million resulting from recording a liability for the outstanding balance of the deferred contribution amounts payable to Monsanto under the Roundup agreement. As previously disclosed, the company had considered the deferred contribution as a contingent liability. The company now believes it is appropriate to record the liability based on numerous economic factors, including the recent strong performance of the Roundup business. Excluding this charge, the commission would have been $40.4 million for the year, compared with $28.5 million a year earlier.

Adjusted net income for the full year, excluding restructuring and other items, increased 12 percent to $151.4 million, or $4.41 per share, compared with $135.3 million, or $4.06 per share, a year earlier. Reported net income was $100.6 million, or $2.93 per share, compared with $100.9 million, or $3.03 per share, in 2004. The company said its return on invested capital improved nearly 40 basis points from 2004 to 10 percent.

"Fiscal 2005 was a tremendous success for ScottsMiracle-Gro as we executed against a strategy that is driving shareholder value," Hagedorn said. "We have great momentum as we enter the new season and we continue to believe our business can generate 10- to 12-percent growth next year. Additionally, we expect our current strategic improvement efforts will generate at least another $25 million in pre-tax profits."

FOURTH QUARTER RESULTS. For the quarter ended Sept. 30, companywide sales increased 8 percent to $392 million. Scotts LawnService reported a 14-percent sales increase in the quarter to nearly $58 million as it continued to benefit from record customer counts and improved retention rates. International sales declined 3 percent to $52 million, a 1-percent decline excluding the impact of foreign exchange rates.

The North American consumer business reported a 5-percent decline in sales for the quarter to $247 million. Although growing media, controls and the Canadian business all showed growth, the Lawns business, as expected, reported lower sales compared with the extremely strong sales reported in the fourth quarter of 2004.

Although overall sales to retailers declined, consumer purchases of the company's products increased in every category resulting in a 9-percent improvement from the same period last year. Purchases of Ortho products increased 17 percent in the quarter compared with last year, and growing media improved 12 percent.

Gross margins in the quarter declined 40 basis points to 33.1 percent, but expanded by 20 basis points excluding Smith & Hawken. Net Roundup commission was $8.3 million compared with $4 million a year ago, reflecting strength in the business as well as a nearly $3 million reduction in contribution expense made to Monsanto.

Excluding restructuring and other charges, ScottsMiracle-Gro reported an adjusted net loss in the quarter of $700,000, or $0.02 per share. That compares with adjusted net income of $2.6 million, or $0.08 per share, for the same period last year. On a reported basis, the Company recorded a loss in the quarter of $8.4 million, or $0.25 per share, compared with a loss of $1.7 million, or $0.05 per share.

"We had a strong finish to another solid year," Hagedorn said. "The lawn and garden consumer stayed with the category and continued to buy our products until the end of the season and we finished the year with retail inventories at appropriate levels entering the off-season."