The Scotts Miracle-Gro Company, the marketer of branded consumer lawn and garden and indoor and hydroponic growing products, said consumer purchases of its core lawn and garden brands surged in May, with unit volume now trending towards the Company’s original assumptions for the season. However, a variety of factors prompted the Company to lower its outlook for both sales and adjusted earnings for fiscal 2022.
Consumer purchases at the Company’s largest retail partners were at near-record levels in May, resulting in year-to-date POS that is approximately 6 percent lower in dollars and 9 percent lower in units than a year ago. The year-over-year decline at the end of May was half of what it had been entering the month due to strong results in all major markets in the Midwest and Northeast.
“The recent improvement in consumer engagement has POS units trending toward our initial expectations, and we expect further gains as the year continues,” said Jim Hagedorn, chairman and chief executive officer. “POS dollars, however, will likely fall short of our initial assumption of flat from 2021 levels due primarily to above-average declines in lawn fertilizer and grass seed, which command higher prices and margins but also tend to be more susceptible to poor spring weather. While there remains enough time in the year to see continued improvement in our controls and gardening categories, that is not likely to be the case with most of the products in our lawn care portfolio.
“Also, while it is encouraging that consumers have demonstrated lawn and garden activity remains an important part of their lifestyle, we did not see the replenishment orders we expected from our retailer partners since mid-May. Retailer orders were more than $300 million below our plans for the month in the U.S. Consumer segment alone. This surprising trend has put significantly greater pressure on our fixed cost structure that, when coupled with the commodity cost increases we have experienced since the start of the war in Ukraine, will cause us to fall well short of the revised financial targets we established in March.”
Adjusted earnings per share are now expected in a range of $4.50 to $5.00. U.S. Consumer sales are expected to decline by 4 to 6 percent. Hawthorne sales are now expected to decline 40 to 45 percent for the year ending September 30, 2022. Entering May, Hawthorne sales had begun to show signs of strengthening but momentum in the business slowed again during the month as expected improvement in outdoor cultivation has been slow to materialize.
The Company also said it is engaged in highly productive discussions with its lenders to obtain a temporary increase in the leverage ratio allowed under a revised credit facility.
Over the past month, the Company also has moved aggressively to reduce full-year SG&A through a series of organizational changes that created operational and management-level efficiencies.
“The decisive steps we have taken to reduce expenses will result in a year-over-year decline of 12 to 13 percent in SG&A for fiscal 2022,” said Cory Miller, executive vice president and chief financial officer. “We would expect to incur restructuring charges in both the third and fourth fiscal quarters as a result of these actions, which we would remove from our adjusted earnings for the year, consistent with our long-held practices related to these non-recurring costs.”
The Company will provide more commentary on June 9, when it participates in the William Blair 42nd Annual Growth Conference in Chicago. A webcast will be available at investor.scotts.com beginning at 1:40 p.m. EDT.
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