Scotts Miracle-Gro Announces Record Net Income for Q2

MARYSVILLE, Ohio – The Scotts Miracle-Gro Co. today announced that its adjusted and reported net income for the second quarter of fiscal 2005 improved 14 percent. The strong performance keeps the company on pace to deliver its previous guidance of 10- to 12-percent improvement in adjusted net income for the full year.

For the quarter ended April 2 ScottsMiracle-Gro reported companywide sales of $787.3 million, up 9 percent from $723.7 million a year earlier. Excluding the impact of Smith & Hawken, net sales increased 5 percent.

Net income was $83.2 million, or $2.44 per diluted share, compared with $73.1 million, or $2.21 per diluted share for the same period last year. Excluding restructuring and other charges, adjusted net income was $83.8 million, or $2.46 per diluted share, compared with $73.7 million, or $2.23 per diluted share, for the same period last year.

"The continued strength of our franchise is evident by our ability to overcome several challenges in the second quarter to deliver record earnings," said Jim Hagedorn, chairman and chief executive officer. "While rising commodity costs as well as higher legal fees and Sarbanes-Oxley compliance costs will continue to pose challenges in the second half of the year, we remain optimistic that our 2005 earnings targets are achievable. Additionally, a significant rebound in sales and consumer purchases during April keeps us on track to grow sales in line with our guidance of 12 to 13 percent for the full year."

SECOND QUARTER RESULTS
During the quarter, Scotts' North America sales increased 4 percent to $583.6 million from $558.7 million. Operating income was up 15 percent over last year to $166.3 million due to improved margins, strong performance in Roundup and controlled SG&A spending.

Scotts LawnService reported a 32-percent increase in sales to $21.6 million and operating loss was reduced to $12.2 million from $12.8 million last year. Scotts LawnService has seen strong response to its direct mail marketing program and its customer count at the end of the quarter is well ahead of last year.

Gross margins in the quarter declined 10 basis points to 39.7 percent due to increased supply chain costs in the international business and Smith & Hawken, which has lower gross margin rates during the second quarter than the company average.

Net Roundup commission was $15.1 million in the quarter, compared with $8.2 million a year earlier, driven by strong sales growth and retail sell-in of Roundup Extended Control, a new product offering for 2005. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $163.1 million in the quarter, compared to $147 million a year earlier. Excluding restructuring and other charges, adjusted EBITDA was $164.1 million, compared with $147.4 million the same period last year.

SIX MONTHS. Net sales through the first six months were $1 billion, up 14 percent from $905.1 million a year earlier. Excluding the impact of Smith & Hawken, net sales increased 7 percent. In North America, sales in the first half increased 5 percent to $696.5 million, versus $662.7 million for last year's comparable period, and operating income was up 20 percent to $136.4 million. Scotts LawnService sales increased 22 percent to $42.5 million and operating loss was $20.5 compared to $19.3 last year.

Gross margins for the first six months declined 20 basis points to 36.9 percent impacted by the same factors as noted for the quarter. Net Roundup commission through the first six months was $8 million, compared to $1.1 million for the first six months of last year.

EBITDA in the first six months was $88.5 million. Excluding restructuring and other charges, adjusted EBITDA was $111.7 million, compared with $103 million the same period last year. Net income was $20.4 million, or $0.60 per diluted share, compared with net income of $2.4 million, or $0.07 per diluted share the same period last year. Excluding restructuring and other charges, adjusted net income was $34.8 million, or $1.02 per diluted share, compared with $30.6 million, or $0.93 per diluted share, for the same period last year.

"We are very pleased with the strong improvement we saw in operating profits during the quarter and the continued strengthening of our balance sheet," said Chris Nagel, chief financial officer. "As a result, we have confidence in our ability to deliver strong cash flow again this year."