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MARYSVILLE, Ohio – The Scotts Miracle-Gro Co. this week announced that its sales and adjusted net income for the third quarter of fiscal 2005 improved 18 percent and 15 percent respectively. The company also said that its recently announced Strategic Improvement Plan is expected to increase annual pre-tax earnings by $25 to $30 million beginning in fiscal 2006. This improvement will be incremental to the 10- to 12-percent net income growth the company targets each year.
"The strength of our business today, coupled with improvements we are making as we prepare for fiscal 2006, gives us confidence in our ability to continue to develop an enduring franchise that is committed to enhancing shareholder value," said Jim Hagedorn, chairman and chief executive officer. "We have a unique opportunity to make changes to our organization without sacrificing our ability to consistently generate growth and ensure our long- term success."
For the quarter ended July 2, 2005, adjusted net income, excluding restructuring and other charges, was $117.2 million, or $3.41 per diluted share, a 15-percent increase from the same period last year. Reported net income for the quarter was $88.5 million, or $2.58 per diluted share, a 12-percent decrease from the same period last year. All business units reported sales growth in the quarter, including a 12 percent increase in the core North America consumer business, which generates the majority of the Company's sales and profits.
"The strength of our brands was evident again in the third quarter as consumer purchases of our products increased 14 percent, rebounding strongly from a delayed start to the season," Hagedorn said. "Our business units are on track to improve their operating profits by more than 10 percent, in line with our expectations. However, the strong growth in operating profits is not enough to offset higher than expected legal expenses and Sarbanes-Oxley compliance costs, which is why we recently reduced our guidance for adjusted net income growth for the year to a range of 6 to10 percent."
ScottsMiracle-Gro also said it has recently completed the refinancing of its existing credit facility by entering into a $1 billion revolving credit facility to replace its previous revolver and term notes. The new 5-year facility provides for tighter borrowing spreads and more flexibility to prepay debt, allowing the company to save an estimated $4 million in interest expense compared to the previous borrowing arrangement.
"Our high levels of free cash flow and continued focus on further strengthening our balance sheet gives us tremendous flexibility to support our long-term business strategies as well as begin to return cash to shareholders through our recently announced plan to declare a dividend," said Chris Nagel, executive vice president and chief financial officer.
The company's strong working capital management is expected to result in approximately $100 million in free cash flow for the year after the acquisition of Smith & Hawken.
Q3 QUARTER 2005 RESULTS. Companywide sales growth was 18 percent in the quarter, or 11 percent excluding Smith & Hawken. Sales for the core North America business increased 12 percent to $656.7 million from $588 million for the same period last year. Sales growth and strong SG&A control in North America led to a 10 percent improvement in operating income to $180.9 million.
Scotts LawnService reported a 20-percent increase in sales to $59.8 million, and its operating profit improved more than 30 percent from last year to $17 million. Customer retention rate of 71 percent remains at an all-time high for the business.
Net Roundup commission was a loss of $21.6 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 $24.1 million in the quarter, compared with $23.4 million a year earlier.
In July 2005, the Company collected $15 million in satisfaction of its outstanding judgment against Central Garden & Pet. In connection with this payment, the company recorded $4.1 million in other income and a credit of $7.9 million in "SG&A - restructuring and other" in the third quarter. The remainder of the payment was applied against the net receivable due from Central. Offsetting the credit to "SG&A - restructuring and other" is a restructuring charge associated with the first phase of the Company's Strategic Improvement Plan.
Year-to-date, net sales through the first nine months were $1.94 billion, up 16 percent from $1.67 billion a year earlier. Net sales increased 9 percent excluding Smith & Hawken. In North America, sales in the first nine months increased 8 percent to $1.35 billion, versus $1.25 billion for last year's comparable period, and operating income was up 14 percent to $317.3 million. Scotts LawnService sales increased 21 percent to $102.3 million, while its operating loss was reduced by 45 percent to $3.5 million.