The Scotts Co. today outlined its business and financial strategy for fiscal 2005, announcing it expects adjusted net income to grow 10 to 12 percent during the year on companywide sales growth of 12 to 13 percent, which includes the effect of the recently acquired Smith & Hawken business.
"Scotts is in a great position to begin leveraging the investments we've made in our business over the last several years to accelerate the improvement of our financial metrics," Chairman and CEO Jim Hagedorn said during the company's annual strategic overview with the investment community. "The fundamentals of our business are outstanding and we are well-positioned to continue driving growth and enhancing shareholder value."
The meeting, which was also available to investors via live webcast, can still be heard at http://investor.scotts.com .
During the meeting, Hagedorn and other Scotts executives outlined various initiatives that are expected to drive growth in 2005 and beyond. The Company said it expects sales in its core North American consumer business, excluding Smith & Hawken, to grow 5 to 6 percent in fiscal 2005. Scotts also will benefit from the recent acquisition of Smith & Hawken, which will add about $150 million of incremental revenue in fiscal 2005.
Scotts LawnService is expected to report sales growth of 15 to 16 percent. The company's international business is projecting sales, excluding the effects of foreign exchange, to be up 2 to 3 percent during the year.
Gross margins are expected to improve 80 to 85 basis points in 2005 due to stronger product mix in the North American business and improved customer service metrics and labor productivity in Scotts LawnService.
Net commissions from Roundup are expected to increase 8 to 10 percent during the year. Advertising expense is expected to increase 23 to 25 percent, which is an increase of 8 to 10 percent excluding the effect of Smith & Hawken.
The company said it expects free cash flow of $65 to $85 million after the $74 million acquisition of Smith & Hawken. The Company defines free cash flow as operating cash flow plus stock option exercises less capital expenditures and cash used for acquisitions.
The company is currently evaluating its future uses of cash, which may include the continued repayment of debt, payment of dividends, share repurchases and funding growth opportunities. Return on invested capital (ROIC), which has improved by nearly 50 basis points since 2002, is also expected to improve 40 to 60 basis points in fiscal 2005.
"We remain extremely bullish on the prospects for our business," Hagedorn said. "Scotts has created a unique franchise in the marketplace that give us confidence in our long-term strategy to consistently grow sales 5 to 7 percent and to grow earnings by 10 to 12 percent."