The ScottsMiracle-Gro Company announced that it now expects company-wide sales to improve 13 to 14 percent for the full-year, higher than its previous guidance, based on stronger-than-expected performance in both its U.S. Consumer and Hawthorne segments. The company also raised its outlook for adjusted earnings per share on a full year basis.
Sales in the U.S. consumer segment are expected to improve 3 to 4 percent from 2018 levels, contributing a similar level of growth on a company-wide basis. This compared to the previous guidance of 1 to 2 percent growth. Hawthorne segment sales are expected to grow 75 to 80 percent, with comparative sales growth of 12 to 15 percent. Hawthorne is expected to contribute approximately 10 points of growth on a company-wide basis, up from 8 to 9 percent initially.
The company also revised its guidance for non-GAAP adjusted earnings per share to a range of $4.20 to $4.40, compared with previous guidance of $4.10 to $4.30 per share.
“Hawthorne continues to benefit from strong growth in both long-standing markets like California and emerging markets like Florida and Michigan,” said Randy Coleman, chief financial officer. “Also, we are now expecting stronger sales growth in our U.S. Consumer business due to higher-than-planned sales of mulch products and increased year-over-year retailer engagement.”
Consumer purchases of the company’s core lawn and garden products were up 4 percent entering fiscal June, driven primarily by continued demand for soils, mulch, weed control and lawn care products.
“The year-over-year POS comparisons for May were extremely difficult, but we exited the month in line with our initial expectations for year-to-date consumer purchases,” Coleman said. “We believe the U.S. Consumer business is well-positioned as we begin line review discussions with our retail partners about our plans for next season.”
The company expects the gross margin rate to be flat to down 50 basis points for the full year due to higher-than-expected lower margin mulch sales in the U.S. Consumer segment as well as increased promotional spending in Hawthorne. The promotional activity has helped Hawthorne improve its overall position in the marketplace and more clearly establish itself as the leading provider of hydroponic growing equipment.
SG&A is now expected to increase 8 to 9 percent on a full-year basis, compared to an original projection of 5 to 6 percent. Higher marketing spending has been the primary driver in the revision due to investments in support of new weed control products that were not anticipated at the start of the year.
Free cash flow, defined as operating cash flow net of capital expenditures, is expected to range from $140 to $160 million. That number includes approximately $45 million of litigation payments that were accrued for in fiscal 2018, as well as approximately $120 million of tax payments associated with the $234 million of proceeds, reflected as investing cash flow, from the 2019 divestiture of the company’s minority ownership position in TruGreen.
“While we still have work in front of us for the balance of the fiscal year, we are pleased with our overall performance this season, the strength of our brands and the strong recovery we’ve seen in the hydroponics industry,” Coleman said. “We continue to see cash flow as our primary financial metric and, without the unusual litigation and tax items, we would be expecting free cash flow of approximately $300 million.”