The Scotts Company Discusses Second Quarter Results

MARYSVILLE, Ohio – Before discussing second quarter earnings for The Scotts Company today, president and chief executive officer Jim Hagedorn prefaced the announcement with optimism. “We look forward to continuing growth as a business,” he shared during a conference call broadcast online earlier today. “The weather has been great so far this spring and we’re off to a great year with Scotts Lawn Service.” 

In fact, even though company-wide sales have fallen 1.5 percent in the second quarter compared to last year, from $713.5 million in 2001 to $602.1 million in 2002, inventory reductions in the first two quarters and delayed product shipping indicate that sales may pick up in the second half of the fiscal year. The Scotts Co. has made a move to ship products later in the year, closer to the consumer point of sale, Hagedorn emphasized. “Three quarters of our consumer purchases occur in the second half of the fiscal year,” he said.

Company earnings prior to interest, taxes, depreciation and amoritization, excluding restructuring and miscelleaneous charges, dropped from $183.9 million during the second quarter last year to $138.5 million this year. In addition, net income for the second quarter was $65.4 million, falling from a 2001 net income of $84.8 million.

Consumer sales also decreased across the board for the second quarter. Lawns reported sales of $223.8 million, compared with $288.2 million last year; Growing Media sales fell from $94.5 million to $91.5 million; Ortho sold $66.6 million, down from last year’s $81.5 million and Gardens reported $54.9 million in sales, which dropped from $61.6 million in 2001.

In particular, Ortho sales fell because of inadequate inventory levels, which the company plans to remedy in the next couple of quarters, Hagedorn mentioned. “Some of the drop is attributed to the Ortho business – last year we didn’t have enough on hand,” he said. “This year we’re going to prevent that from happening and help improve customer flow rate.”

However, Scotts Lawn Service reported a sales increase in the second quarter of 2002, driven largely by key acquisitions over the past year in April 2001, February 2002 and March 2002. Sales peaked at $7.4 million this quarter, which is a 69 percent increase from $4.4 million in 2001.

Gross margins fell from 40.9 percent last year to 39.8 percent in 2002, another consequence of reduced inventory levels and changing sales strategies.

Despite media alerts about the drought situation, Hagedorn indicated that weather patterns had only affected Scotts’ quarterly results in a positive fashion. “The spring weather is great for our lawns and gardens, and it is getting lawns off to a healthy start this spring,” he said. “We have no signs that the drought will affect consumer behavior in a negative fashion."

Finally, Scotts Co. earnings per share have exceeded stock analysts’ forecasts in the current market. Even though predictions were lowered last month, the stock was up $1.87, or more than 4 percent, at $45.62 Thursday on the New York Stock Exchange.

To listen to a re-broadcast of today’s conference call, click here.

The author is Assistant Editor – Internet of Lawn & Landscape magazine and can be reached at kmohn@gie.net.