Scotts Miracle-Gro Earnings 2020-06-27

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

smg-20200627

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________________

FORM 10-Q

_________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 27, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-11593

____________________________________

The Scotts Miracle-Gro Company

(Exact name of registrant as specified in its charter)

____________________________________________

Ohio

31-1414921

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

14111 Scottslawn Road, Marysville, Ohio 43041

(Address of principal executive offices) (Zip Code)

(937) 644-0011

(Registrant’s telephone number, including area code)

_____________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, $0.01 stated value

SMG

NYSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes			☐			No			☒

As of July 31, 2020, there were 55,768,819 Common Shares outstanding.

Table of Contents

THE SCOTTS MIRACLE-GRO COMPANY
INDEX

PAGE NO.

PART I. FINANCIAL INFORMATION:

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Statements of Operations — Three and nine months ended June 27 , 2020 and June 29 , 2019

Condensed Consolidated Statements of Comprehensive Income (Loss) — Three and nine months ended June 27, 20 20 and June 29 , 2019

Condensed Consolidated Statements of Cash Flows — Nine months ended June 27 , 2020 and June 29, 2019

Condensed Consolidated Balance Sheets — June 2 7 , 2020, June 29, 2019 and September 30, 2019

Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

PART II. OTHER INFORMATION:

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE SCOTTS MIRACLE-GRO COMPANY

Condensed Consolidated Statements of Operations

(In millions, except per share data)

(Unaudited)


	THREE MONTHS ENDED						NINE MONTHS ENDED
	JUNE 27, 2020		JUNE 29, 2019		JUNE 27, 2020		JUNE 29, 2019
Net sales	$	1,492.7	$	1,170.3	$	3,241.3	$	2,658.3
Cost of sales	954.3		747.0		2,094.9		1,724.8
Cost of sales—impairment, restructuring and other	11.7		(0.1)		15.3		3.4

Gross profit	526.7		423.4		1,131.1		930.1
Operating expenses:
Selling, general and administrative	237.7		166.4		553.1		462.4
Impairment, restructuring and other	4.2		0.6		2.0		4.3

Other (income) expense, net	0.3		(1.8)		0.4		(0.1)
Income from operations	284.5		258.2		575.6		463.5
Equity in income of unconsolidated affiliates	—		—		—		(3.3)
Costs related to refinancing	—		—		15.1		—
Interest expense	20.3		25.9		63.0		80.0
Other non-operating income, net	(1.9)		(5.1)		(7.3)		(268.2)
Income from continuing operations before income taxes	266.1		237.4		504.8		655.0
Income tax expense from continuing operations	61.8		59.4		122.0		162.7
Income from continuing operations	204.3		178.0		382.8		492.3
Income (loss) from discontinued operations, net of tax	(1.0)		23.6		1.6		26.1
Net income	$	203.3	$	201.6	$	384.4	$	518.4
Net (income) loss attributable to noncontrolling interest	(0.5)		0.1		(0.9)		0.2
Net income attributable to controlling interest	$	202.8	$	201.7	$	383.5	$	518.6

Basic income (loss) per common share:
Income from continuing operations	$	3.67	$	3.21	$	6.86	$	8.89
Income (loss) from discontinued operations	(0.02)		0.42		0.03		0.47
Basic net income per common share	$	3.65	$	3.63	$	6.89	$	9.36
Weighted-average common shares outstanding during the period	55.6		55.5		55.7		55.4

Diluted income (loss) per common share:
Income from continuing operations	$	3.57	$	3.15	$	6.74	$	8.78
Income (loss) from discontinued operations	(0.02)		0.41		0.02		0.46
Diluted net income per common share	$	3.55	$	3.56	$	6.76	$	9.24
Weighted-average common shares outstanding during the period plus dilutive potential common shares	57.1		56.6		56.7		56.1

See Notes to Condensed Consolidated Financial Statements.

Contents

THE SCOTTS MIRACLE-GRO COMPANY

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In millions)

(Unaudited)


	THREE MONTHS ENDED						NINE MONTHS ENDED
	JUNE 27, 2020		JUNE 29, 2019		JUNE 27, 2020		JUNE 29, 2019
Net income	$	203.3	$	201.6	$	384.4	$	518.4
Other comprehensive income (loss):
Net foreign currency translation adjustment, including reclassifications to net income of zero, zero, zero and $2.5, respectively	5.3		3.1		—		(1.5)
Net unrealized loss on derivative instruments, net of tax of $(1.0), $(1.1), $(5.4) and $(4.7), respectively	(3.0)		(3.1)		(15.5)		(13.4)
Reclassification of net unrealized (gains) losses on derivative instruments to net income, net of tax of $1.1, zero, $2.0 and $(0.7), respectively	3.1		(0.1)		5.8		(2.1)

Reclassification of net pension and other post-retirement benefit (gains) losses to net income, net of tax of $0.1, $0.2, $0.5 and $0.5, respectively	0.3		0.7		1.4		1.3
Total other comprehensive income (loss)	5.7		0.6		(8.3)		(15.7)
Comprehensive income	209.0		202.2		376.1		502.7
Comprehensive (income) loss attributable to noncontrolling interest	(0.5)		0.1		(0.9)		0.2
Comprehensive income attributable to controlling interest	$	208.5	$	202.3	$	375.2	$	502.9

See Notes to Condensed Consolidated Financial Statements.

Contents

THE SCOTTS MIRACLE-GRO COMPANY

Condensed Consolidated Statements of Cash Flows

(In millions) (Unaudited)


	NINE MONTHS ENDED
	JUNE 27, 2020		JUNE 29, 2019
OPERATING ACTIVITIES
Net income	$	384.4	$	518.4
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Impairment, restructuring and other	—		0.5
Costs related to refinancing	15.1		—
Share-based compensation expense	41.8		28.4
Depreciation	45.4		41.8
Amortization	23.6		25.2
Deferred taxes	(4.8)		(31.8)
(Gain) loss on long-lived assets	(0.2)		1.2
(Gain) loss on sale of business / unconsolidated affiliate	—		(262.6)

Recognition of accumulated foreign currency translation loss	—		2.5
Equity in income and distributions from unconsolidated affiliates	—		1.6
Changes in assets and liabilities, net of acquired businesses:
Accounts receivable	(840.0)		(436.0)
Inventories	46.1		(53.4)
Prepaid and other assets	(28.5)		(24.4)
Accounts payable	115.3		79.7
Other current liabilities	262.1		130.6
Restructuring and other	(5.5)		(83.6)
Other non-current items	(12.3)		(16.2)
Other, net	—		0.4
Net cash provided by (used in) operating activities	42.5		(77.7)

INVESTING ACTIVITIES
Proceeds from sale of long-lived assets	0.2		0.2

Investments in property, plant and equipment	(41.7)		(28.8)
Proceeds from (investments in) loans receivable	(2.5)		20.8

Proceeds from sale of brand extension assets	115.5		—
Proceeds from sale of investment in unconsolidated affiliates	—		274.3
Investments in acquired businesses, net of cash acquired	—		(6.6)
Other investing, net	2.9		3.6
Net cash provided by investing activities	74.4		263.5

FINANCING ACTIVITIES
Borrowings under revolving and bank lines of credit and term loans	1,134.3		938.8
Repayments under revolving and bank lines of credit and term loans	(1,118.6)		(1,029.0)
Proceeds from issuance of 4.500% Senior Notes	450.0		—

Repayment of 6.000% Senior Notes	(400.0)		—

Financing and issuance fees	(18.7)		—
Dividends paid	(97.8)		(92.1)

Purchase of Common Shares	(53.1)		(3.0)
Payments on seller notes	(0.5)		(0.8)

Cash received from exercise of stock options	17.0		3.2


Net cash used in financing activities	(87.4)		(182.9)
Effect of exchange rate changes on cash	—		(0.4)
Net increase in cash and cash equivalents	29.5		2.5


Cash and cash equivalents at beginning of period	18.8		33.9
Cash and cash equivalents at end of period	$	48.3	$	36.4

See Notes to Condensed Consolidated Financial Statements.

Contents

THE SCOTTS MIRACLE-GRO COMPANY

Condensed Consolidated Balance Sheets

(In millions, except stated value per share)

(Unaudited)


	JUNE 27, 2020		JUNE 29, 2019		SEPTEMBER 30, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	48.3	$	36.4	$	18.8
Accounts receivable, less allowances of $13.3, $7.6 and $4.2, respectively	970.1		395.8		223.9
Accounts receivable pledged	177.8		351.1		84.5
Inventories	493.1		533.7		540.3

Prepaid and other current assets	89.5		72.9		174.2
Total current assets	1,778.8		1,389.9		1,041.7

Property, plant and equipment, net of accumulated depreciation of $671.1, $649.9 and $628.0, respectively	533.2		506.7		546.0
Goodwill	540.0		541.9		538.7
Intangible assets, net	685.3		831.1		707.5
Other assets	339.5		197.8		194.8
Total assets	$	3,876.8	$	3,467.4	$	3,028.7

LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt	$	206.4	$	363.2	$	128.1
Accounts payable	310.5		222.6		214.2


Other current liabilities	589.8		369.6		278.2
Total current liabilities	1,106.7		955.4		620.5
Long-term debt	1,516.0		1,563.5		1,523.5

Other liabilities	250.2		143.3		161.5
Total liabilities	2,872.9		2,662.2		2,305.5
Commitments and contingencies (Note 10)
Equity:
Common shares and capital in excess of $.01 stated value per share; shares outstanding of 55.8, 55.4 and 55.8, respectively	465.8		437.0		442.2
Retained earnings	1,557.0		1,369.3		1,274.7
Treasury shares, at cost; 12.4, 12.7 and 12.4 shares, respectively	(922.1)		(927.3)		(904.3)
Accumulated other comprehensive loss	(102.2)		(78.6)		(93.9)
Total equity—controlling interest	998.5		800.4		718.7
Noncontrolling interest	5.4		4.8		4.5
Total equity	1,003.9		805.2		723.2
Total liabilities and equity	$	3,876.8	$	3,467.4	$	3,028.7

See Notes to Condensed Consolidated Financial Statements.

Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Scotts Miracle-Gro Company (“Scotts Miracle-Gro” or “Parent”) and its subsidiaries (collectively, together with Scotts Miracle-Gro, the “Company”) are engaged in the manufacturing, marketing and sale of products for lawn and garden care and indoor, urban and hydroponic gardening. The Company’s products are sold in North America, Europe and Asia.

Due to the seasonal nature of the consumer lawn and garden business, the majority of the Company’s sales to customers occur in the Company’s second and third fiscal quarters. On a combined basis, net sales for the second and third quarters of the last three fiscal years represented approximately 75% of the Company’s annual net sales.

Organization and Basis of Presentation

The Company’s unaudited condensed consolidated financial statements for the three and nine months ended June 27, 2020 and June 29, 2019 are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated financial statements include the accounts of Scotts Miracle-Gro and its subsidiaries. All intercompany transactions and accounts have been eliminated in consolidation. The Company’s consolidation criteria are based on majority ownership (as evidenced by a majority voting interest in the entity) and an objective evaluation and determination of effective management control. AeroGrow International, Inc. (“AeroGrow”), in which the Company has a controlling interest, is consolidated, with the equity owned by other shareholders shown as noncontrolling interest in the Condensed Consolidated Balance Sheets, and the other shareholders’ portion of net earnings and other comprehensive income shown as net (income) loss or comprehensive (income) loss attributable to noncontrolling interest in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Comprehensive Income (Loss), respectively. The results of businesses acquired or disposed of are included in the condensed consolidated financial statements from the date of each acquisition or up to the date of disposal, respectively. In the opinion of management, interim results reflect all normal and recurring adjustments and are not necessarily indicative of results for a full year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted or condensed pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, this Quarterly Report on Form 10-Q should be read in conjunction with Scotts Miracle-Gro’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019 (the “2019 Annual Report”), which includes a complete set of footnote disclosures, including the Company’s significant accounting policies.

The Company’s Condensed Consolidated Balance Sheet at September 30, 2019 has been derived from the Company’s audited Consolidated Balance Sheet at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

Long-Lived Assets

The Company had non-cash investing activities of $3.2 million and $1.8 million during the nine months ended June 27, 2020 and June 29, 2019, respectively, representing unpaid liabilities to acquire property, plant and equipment.

Statements of Cash Flows

Supplemental cash flow information was as follows:

Price	102.32	EPS	8
Shares	56	P/E	13
MCap	5,761	P/FCF	25
Net Debt	1,647	EBIT	739
TEV	7,408	TEV/EBIT	10
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-06-27	Filed 2020-08-05
10-Q	2020-03-28	Filed 2020-05-06
10-Q	2019-12-28	Filed 2020-02-05
10-K	2019-09-30	Filed 2019-11-27
10-Q	2019-06-29	Filed 2019-08-07
10-Q	2019-03-30	Filed 2019-05-08
10-Q	2018-12-29	Filed 2019-02-06
10-K	2018-09-30	Filed 2018-11-29
10-Q	2018-06-30	Filed 2018-08-08
10-Q	2018-03-31	Filed 2018-05-09
10-Q	2017-12-30	Filed 2018-02-08
10-K	2017-09-30	Filed 2017-11-28
10-Q	2017-07-01	Filed 2017-08-10
10-Q	2017-04-01	Filed 2017-05-10
10-Q	2017-02-09	Filed 2017-02-09
10-K	2016-09-30	Filed 2016-11-28
10-Q	2016-07-02	Filed 2016-08-10
10-Q	2016-04-02	Filed 2016-05-11
10-Q	2016-01-02	Filed 2016-02-11
10-K	2015-09-30	Filed 2015-11-24
10-Q	2015-06-27	Filed 2015-08-06
10-Q	2015-03-28	Filed 2015-05-07
10-Q	2014-12-27	Filed 2015-02-05
10-K	2014-09-30	Filed 2014-11-25
10-Q	2014-06-28	Filed 2014-08-07
10-Q	2014-03-29	Filed 2014-05-08
10-Q	2013-12-28	Filed 2014-02-06
10-K	2013-09-30	Filed 2013-11-20
10-Q	2013-06-29	Filed 2013-08-07
10-Q	2013-03-30	Filed 2013-05-07
10-Q	2012-12-29	Filed 2013-02-07
10-K	2012-09-30	Filed 2012-11-20
10-Q	2012-06-30	Filed 2012-08-09
10-Q	2012-03-31	Filed 2012-05-08
10-Q	2011-12-31	Filed 2012-02-08
10-K	2011-09-30	Filed 2011-11-23
10-Q	2011-07-02	Filed 2011-08-10
10-Q	2011-04-02	Filed 2011-05-12
10-Q	2011-01-01	Filed 2011-02-10
10-K	2010-09-30	Filed 2010-11-24
10-Q	2010-07-03	Filed 2010-08-12
10-Q	2010-04-03	Filed 2010-05-13
10-Q	2010-01-02	Filed 2010-02-11

8-K	2020-08-25	Enter Agreement, Off-BS Arrangement, Exhibits
8-K	2020-07-29	Earnings, Exhibits
8-K	2020-05-06
8-K	2020-03-02
8-K	2020-01-29
8-K	2020-01-29
8-K	2019-11-06
8-K	2019-10-31
8-K	2019-10-28
8-K	2019-10-15
8-K	2019-08-20
8-K	2019-07-31
8-K	2019-06-20
8-K	2019-05-01
8-K	2019-03-20
8-K	2019-01-30
8-K	2019-01-30
8-K	2018-11-07
8-K	2018-08-22
8-K	2018-07-31
8-K	2018-07-11
8-K	2018-06-05
8-K	2018-05-03
8-K	2018-05-01
8-K	2018-04-17
8-K	2018-01-30
8-K	2018-01-26
8-K	2018-01-19

EX-10	exhibit10smg20200627.htm
EX-14	exhibit14smg20200627.htm
EX-21	exhibit21smg20200627.htm
EX-22	exhibit22smg20200627.htm
EX-31.1	exhibit311smg20200627.htm
EX-31.2	exhibit312smg20200627.htm
EX-32	exhibit32smg20200627.htm

SMG 10Q Quarterly Report

Scotts Miracle-Gro Earnings 2020-06-27