The Scotts Miracle-Gro Company (NYSE: SMG), the world’s largest
marketer of branded consumer lawn and garden as well as a leader in
indoor and hydroponic growing products, today announced its results
for the first quarter ended December 30, 2023.
“Our Q1 results further indicate that we’re
making measurable progress on a number of important fronts and
setting ourselves up well ahead of the peak spring season load-in
with retailers,” said Jim Hagedorn, CEO, chairman and president of
ScottsMiracle-Gro.
“As we look to the year ahead, we are focused on
driving top-line growth, tightly controlling expenses and
delivering on our targets for free cash flow generation, gross
margin improvement and aggressive debt paydown. We are reaffirming
our guidance of high-single digit growth in our consumer business,
and in Hawthorne, we continue to take actions to ensure the
business remains cash flow positive in fiscal 2024 and a major
contributor to our debt paydown.”
First Quarter Details
For the quarter ended December 30, 2023, total
Company sales declined 22 percent to $410.4 million from $526.6
million a year ago. Due to seasonality, the first quarter typically
represents less than 15 percent of full-year sales.
U.S. Consumer net sales decreased 17 percent to
$306.7 million from $369.0 million in the same period last year,
driven by the normalization of shipment phasing to pre-pandemic
levels. Hawthorne segment sales decreased 39 percent to $80.1
million compared to $131.5 million last year. The decline was
largely due to continued pressure on the indoor and hydroponic
industry as a whole and the Company’s purposeful actions to
restructure the business, including a focus on fewer but more
profitable brands.
GAAP and non-GAAP adjusted gross margin rates
for the quarter were 15.2 percent and 13.7 percent, respectively.
These compare to 18.2 percent and 20.1 percent, respectively, in
the prior year. The declines were due primarily to adjustments in
the phasing of shipments which reduced fixed cost leverage. Pricing
and sales of higher cost raw materials drove the remainder of the
change. Those pressures were partially offset by distribution
savings from Project Springboard.
SG&A was down 11 percent to $114.8 million
during the quarter compared to $128.5 million a year ago, and down
26 percent compared to the first quarter of fiscal 2022, primarily
driven by Project Springboard actions. The Company expects to
recognize more than 80 percent of the final $100 million of Project
Springboard savings through the end of fiscal 2024, directing a
portion of the incremental savings to reinvestment in the
business.
“The diligence and focus of our associates on
cost savings while maintaining excellence in operations has allowed
the Company to overachieve our total Project Springboard savings
target of $300 million over three phases,” said Matt Garth, chief
administrative and financial officer. “We plan to invest a
meaningful portion of the incremental savings directly into our
marketing and selling efforts this season.”
Interest expense during the quarter was flat
compared to the same quarter last year with higher interest rates
offsetting the benefit of a lower debt balance. The Company’s
average net debt to adjusted EBITDA leverage ratio at the end of
the quarter was 7.20 times, well within the covenant maximum of
8.25 times. The maximum leverage ratio under the revised covenants
decreases to 7.75 in the second quarter, 6.50 in the third quarter
and 6.00 in the fourth quarter of the fiscal year.
The Company reestablished a 50-percent interest
in its Bonnie Plants, LLC live goods joint venture during the
quarter. GAAP equity in loss of unconsolidated affiliates, which
represents our share of the results of the joint venture, includes
a pre-tax impairment charge of $10.4 million recorded during the
quarter.
The Company reported a GAAP net loss of $80.5
million, or $1.42 per share, compared with a prior year loss of
$64.7 million, or $1.17 per share. Non-GAAP adjusted loss, which
excludes impairment, restructuring and other non-recurring items,
was $82.2 million, or $1.45 per share, for the quarter, compared
with a loss of $56.4 million, or $1.02 per share, for the same
period last year.
Fiscal 2024 Outlook
The Company reaffirms the non-GAAP fiscal 2024
guidance provided last quarter with the exception of Hawthorne net
sales. Hawthorne is aggressively pursuing its Signature product
strategy to focus on fewer but more profitable brands. The
full-year impact on segment net sales cannot yet be estimated with
rapid changes underway though the segment is expected to be cash
flow positive for the full year. The Company’s primary objective
remains restoring a strong balance sheet by generating $575 million
adjusted EBITDA and free cash flow of $560 million to deliver the
remainder of $1 billion in free cash flow over two years. The
Company will further outline its expectations for fiscal 2024
during today’s call.
Conference Call and Webcast Scheduled
for 9 a.m. ET Today, February 7The Company will discuss
results during a video presentation via webcast today at 9:00 a.m.
ET. To watch the Company presentation and listen to the
question-and-answer session, please register in advance at this
webcast link. For those planning to participate in the
question-and-answer session that follows the video presentation,
please register for the webcast to view the presentation in
addition to registering in advance via this audio link to receive
call-in details and a unique PIN. A replay of the conference call
will also be available on the Company’s investor website where an
archive of the press release and any accompanying information will
remain available for at least a 12-month period.
Net Sales Details
Fiscal First Quarter (October - December
2023) |
|
Net Sales Drivers (1) |
Volume & Mix |
Foreign Exchange |
Price |
Other(2) |
Net Sales |
U.S. Consumer |
(13 |
)% |
– |
% |
(4 |
)% |
– |
% |
(17 |
)% |
Hawthorne |
(38 |
)% |
1 |
% |
(2 |
)% |
– |
% |
(39 |
)% |
Other |
(8 |
)% |
– |
% |
(1 |
)% |
(1 |
)% |
(10 |
)% |
Total SMG |
(19 |
)% |
– |
% |
(3 |
)% |
– |
% |
(22 |
)% |
|
(1) Net Sales
percentage changes are approximations based on quantitative
formulas that are consistently applied |
(2) Other includes
the impact of acquisitions and divestitures and rounding impacts
necessary to reconcile to net sales |
|
About ScottsMiracle-GroWith
approximately $3.6 billion in sales, the Company is the world’s
largest marketer of branded consumer products for lawn and garden
care. The Company’s brands are among the most recognized in the
industry. The Company’s Scotts®, Miracle-Gro®, and Ortho® brands
are market-leading in their categories. The Company’s wholly-owned
subsidiary, The Hawthorne Gardening Company, is a leading provider
of nutrients, lighting, and other materials used in the indoor and
hydroponic growing segment. For additional information, visit us at
www.scottsmiraclegro.com.
Cautionary Note Regarding
Forward-Looking Statements Statements contained in this
press release, other than statements of historical fact, which
address activities, events and developments that the Company
expects or anticipates will or may occur in the future, including,
but not limited to, information regarding the future economic
performance and financial condition of the Company, the plans and
objectives of the Company’s management, and the Company’s
assumptions regarding such performance and plans are
“forward-looking statements” within the meaning of the U.S. federal
securities laws that are subject to risks and uncertainties. These
forward-looking statements generally can be identified as
statements that include phrases such as “guidance,” “outlook,”
“projected,” “believe,” “target,” “predict,” “estimate,”
“forecast,” “strategy,” “may,” “goal,” “expect,” “anticipate,”
“intend,” “plan,” “foresee,” “likely,” “will,” “should” or other
similar words or phrases. Actual results could differ materially
from the forward-looking information in this release due to a
variety of factors, including, but not limited to:
- An economic downturn and economic uncertainty may adversely
affect demand for the Company’s products;
- If the Company underestimates or overestimates demand for its
products and does not maintain appropriate inventory levels, its
net sales and/or working capital could be negatively impacted;
- The Company’s operations, financial condition or reputation,
may be impaired if its information technology systems fail to
perform adequately or if it is the subject of a data breach or
cyber-attack;
- Climate change and unfavorable weather conditions could
adversely impact financial results;
- Our success depends upon the retention and availability of key
personnel and the effective succession of senior management;
- Our workforce reductions may cause undesirable consequences and
our results of operations may be harmed;
- Disruptions in availability or increases in the prices of raw
materials, fuel or transportation costs could adversely affect our
results of operations;
- A significant interruption in the operation of the Company’s or
its suppliers’ facilities could impact the Company’s capacity to
produce products and service its customers, which could adversely
affect the Company’s revenues and earnings;
- Acquisitions, other strategic alliances and investments could
result in operating difficulties, dilution and other harmful
consequences that may adversely impact the Company’s business and
results of operations;
- Compliance with environmental and other public health
regulations or changes in such regulations or regulatory
enforcement priorities could increase our costs of doing business
or limit our ability to market all of our products;
- Because of the concentration of the Company’s sales to a small
number of retail customers, the loss of one or more of, or
significant reduction in orders from, its top customers, or a
material reduction in the inventory of the Company’s products that
they carry, could adversely affect the Company’s financial
results;
- The Company’s indebtedness could limit its flexibility and
adversely affect its financial condition;
- The Company’s decision to maintain, reduce or discontinue
paying cash dividends to its shareholders or repurchasing its
Common Shares could cause the market price for its common shares to
decline;
- If the perception of the Company’s brands or organizational
reputation are damaged, its customers, distributors and retailers
may react negatively, which could materially and adversely affect
the Company’s business, financial condition and results of
operations;
- In the event the Third Restated Marketing Agreement for
consumer Roundup products terminates, or Monsanto’s consumer
Roundup business materially declines the Company would lose a
substantial source of future earnings and overhead expense
absorption; and
- Hagedorn Partnership, L.P. beneficially owns approximately 25%
of the Company’s common shares and can significantly influence
decisions that require the approval of shareholders.
Additional detailed information concerning a number of the
important factors that could cause actual results to differ
materially from the forward-looking information contained in this
release is readily available in the Company’s publicly filed
quarterly, annual and other reports. The Company disclaims any
obligation to update developments of these risk factors or to
announce publicly any revision to any of the forward-looking
statements contained in this release, or to make corrections to
reflect future events or developments.
For investor inquiries:Aimee
DeLucaSr. Vice PresidentInvestor
Relationsaimee.deluca@scotts.com(937)
578-5621
For media inquiries:Tom
MatthewsChief Communications
Officertom.matthews@scotts.com(937)
644-7044
THE SCOTTS MIRACLE-GRO COMPANYCondensed
Consolidated Statements of Operations(In millions, except
per share data)(Unaudited) |
|
|
|
|
Three Months Ended |
|
|
|
Footnotes |
|
December 30, 2023 |
|
December 31, 2022 |
|
% Change |
Net sales |
|
|
$ |
410.4 |
|
|
$ |
526.6 |
|
|
(22)% |
Cost of sales |
|
|
|
354.0 |
|
|
|
420.6 |
|
|
|
Cost of sales—impairment,
restructuring and other |
|
|
|
(5.8 |
) |
|
|
10.3 |
|
|
|
Gross margin |
|
|
|
62.2 |
|
|
|
95.7 |
|
|
(35)% |
% of sales |
|
|
|
15.2 |
% |
|
|
18.2 |
% |
|
|
Operating expenses: |
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
|
114.8 |
|
|
|
128.5 |
|
|
(11)% |
Impairment, restructuring and other |
|
|
|
(7.1 |
) |
|
|
8.5 |
|
|
|
Other expense, net |
|
|
|
1.8 |
|
|
|
0.5 |
|
|
|
Loss from operations |
|
|
|
(47.3 |
) |
|
|
(41.8 |
) |
|
(13)% |
% of sales |
|
|
|
(11.5 |
)% |
|
|
(7.9 |
)% |
|
|
Equity in loss of
unconsolidated affiliates |
|
|
|
22.5 |
|
|
|
11.4 |
|
|
|
Interest expense |
|
|
|
42.8 |
|
|
|
42.7 |
|
|
|
Other non-operating (income)
expense, net |
|
|
|
1.6 |
|
|
|
(1.6 |
) |
|
|
Loss before income taxes |
|
|
|
(114.2 |
) |
|
|
(94.3 |
) |
|
(21)% |
Income tax benefit |
|
|
|
(33.7 |
) |
|
|
(29.6 |
) |
|
|
Net loss |
|
|
$ |
(80.5 |
) |
|
$ |
(64.7 |
) |
|
(24)% |
|
|
|
|
|
|
|
|
Basic net loss per common share |
(1 |
) |
|
$ |
(1.42 |
) |
|
$ |
(1.17 |
) |
|
(21)% |
Diluted net loss per common
share |
(2 |
) |
|
$ |
(1.42 |
) |
|
$ |
(1.17 |
) |
|
(21)% |
|
|
|
|
|
|
|
|
Common shares used in basic
net loss per share calculation |
|
|
|
56.7 |
|
|
|
55.5 |
|
|
2% |
Common shares and potential
common shares used in diluted net loss per share calculation |
|
|
|
56.7 |
|
|
|
55.5 |
|
|
2% |
|
|
|
|
|
|
|
|
Non-GAAP results: |
|
|
|
|
|
|
|
Adjusted net loss |
(3 |
) |
|
$ |
(82.2 |
) |
|
$ |
(56.4 |
) |
|
(46)% |
Adjusted diluted net loss per
common share |
(2) (3 |
) |
|
$ |
(1.45 |
) |
|
$ |
(1.02 |
) |
|
(42)% |
Adjusted EBITDA |
(3 |
) |
|
$ |
(25.8 |
) |
|
$ |
21.2 |
|
|
(222)% |
Note: See
accompanying footnotes. |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company divides its operations into three
reportable segments: U.S. Consumer, Hawthorne and Other. U.S.
Consumer consists of the Company’s consumer lawn and garden
business in the United States. Hawthorne consists of the Company’s
indoor and hydroponic gardening business. Other primarily consists
of the Company’s consumer lawn and garden business in Canada. This
identification of reportable segments is consistent with how the
segments report to and are managed by the chief operating decision
maker of the Company. In addition, Corporate consists of general
and administrative expenses and certain other income and expense
items not allocated to the business segments.
The performance of each reportable segment is
evaluated based on several factors, including income (loss) before
income taxes, amortization, impairment, restructuring and other
charges (“Segment Profit (Loss)”), which is a non-GAAP financial
measure. Senior management uses Segment Profit (Loss) to evaluate
segment performance because they believe this measure is indicative
of performance trends and the overall earnings potential of each
segment.
The following tables present financial information for the
Company’s reportable segments for the periods indicated:
THE SCOTTS MIRACLE-GRO COMPANYSegment
Results(In millions)(Unaudited) |
|
|
Three Months Ended |
|
December 30, 2023 |
|
December 31, 2022 |
|
% Change |
Net
Sales: |
|
|
|
|
|
U.S. Consumer |
$ |
306.7 |
|
|
$ |
369.0 |
|
|
(17)% |
Hawthorne |
|
80.1 |
|
|
|
131.5 |
|
|
(39)% |
Other |
|
23.6 |
|
|
|
26.1 |
|
|
(10)% |
Consolidated |
$ |
410.4 |
|
|
$ |
526.6 |
|
|
(22)% |
|
|
|
|
|
|
Segment Profit (Loss)
(Non-GAAP): |
|
|
|
|
|
U.S. Consumer |
$ |
(15.5 |
) |
|
$ |
31.3 |
|
|
(150)% |
Hawthorne |
|
(9.7 |
) |
|
|
(16.2 |
) |
|
40% |
Other |
|
(5.0 |
) |
|
|
1.4 |
|
|
(457)% |
Total Segment Profit (Loss) (Non-GAAP) |
|
(30.2 |
) |
|
|
16.5 |
|
|
(283)% |
Corporate |
|
(26.0 |
) |
|
|
(31.9 |
) |
|
|
Intangible asset
amortization |
|
(4.0 |
) |
|
|
(7.7 |
) |
|
|
Impairment, restructuring and
other |
|
12.9 |
|
|
|
(18.7 |
) |
|
|
Equity in loss of
unconsolidated affiliates |
|
(22.5 |
) |
|
|
(11.4 |
) |
|
|
Interest expense |
|
(42.8 |
) |
|
|
(42.7 |
) |
|
|
Other non-operating income
(expense), net |
|
(1.6 |
) |
|
|
1.6 |
|
|
|
Loss before income taxes (GAAP) |
$ |
(114.2 |
) |
|
$ |
(94.3 |
) |
|
(21) % |
|
THE SCOTTS MIRACLE-GRO COMPANYCondensed Consolidated
Balance Sheets(In millions)(Unaudited) |
|
|
|
|
December 30, 2023 |
|
December 31, 2022 |
|
September 30, 2023 |
ASSETS |
|
Current
assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
10.4 |
|
|
$ |
25.6 |
|
$ |
31.9 |
|
|
|
Accounts receivable, net |
|
287.6 |
|
|
|
490.3 |
|
|
304.2 |
|
|
|
Inventories |
|
1,169.6 |
|
|
|
1,525.9 |
|
|
880.3 |
|
|
|
Prepaid and other current
assets |
|
213.8 |
|
|
|
257.5 |
|
|
181.4 |
|
|
|
Total current assets |
|
1,681.4 |
|
|
|
2,299.3 |
|
|
1,397.8 |
|
|
|
Investment in unconsolidated
affiliates |
|
90.8 |
|
|
|
181.5 |
|
|
91.9 |
|
|
|
Property, plant and equipment,
net |
|
610.4 |
|
|
|
592.8 |
|
|
610.3 |
|
|
|
Goodwill |
|
243.9 |
|
|
|
254.3 |
|
|
243.9 |
|
|
|
Intangible assets, net |
|
433.2 |
|
|
|
576.0 |
|
|
436.7 |
|
|
|
Other assets |
|
656.4 |
|
|
|
630.1 |
|
|
633.1 |
|
|
|
Total assets |
$ |
3,716.1 |
|
|
$ |
4,534.0 |
|
$ |
3,413.7 |
|
LIABILITIES AND EQUITY (DEFICIT) |
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
Current portion of debt |
$ |
54.5 |
|
|
$ |
216.8 |
|
$ |
52.3 |
|
|
|
Accounts payable |
|
332.5 |
|
|
|
366.8 |
|
|
271.2 |
|
|
|
Other current liabilities |
|
377.1 |
|
|
|
348.1 |
|
|
450.2 |
|
|
|
Total current liabilities |
|
764.1 |
|
|
|
931.7 |
|
|
773.7 |
|
|
Long-term
debt |
|
2,969.0 |
|
|
|
3,189.6 |
|
|
2,557.4 |
|
|
Other
liabilities |
|
368.4 |
|
|
|
353.2 |
|
|
349.9 |
|
|
|
Total liabilities |
|
4,101.5 |
|
|
|
4,474.5 |
|
|
3,681.0 |
|
|
Equity
(deficit) |
|
(385.4 |
) |
|
|
59.5 |
|
|
(267.3 |
) |
|
|
Total liabilities and equity (deficit) |
$ |
3,716.1 |
|
|
$ |
4,534.0 |
|
$ |
3,413.7 |
|
|
THE SCOTTS MIRACLE-GRO COMPANYReconciliation of Non-GAAP
Disclosure Items (3)(In millions, except per share
data)(Unaudited) |
|
|
Three Months Ended December 30, 2023 |
|
Three Months Ended December 31, 2022 |
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Equityin loss ofunconsolidatedaffiliates |
Adjusted (Non-GAAP) |
|
AsReported(GAAP) |
Impairment,Restructuringand Other |
Adjusted(Non-GAAP) |
Gross margin |
$ |
62.2 |
|
$ |
5.8 |
$ |
— |
|
$ |
56.4 |
|
|
$ |
95.7 |
|
$ |
(10.2 |
) |
$ |
105.9 |
|
Gross margin as a % of
sales |
|
15.2 |
% |
|
|
|
13.7 |
% |
|
|
18.2 |
% |
|
|
20.1 |
% |
Loss from operations |
|
(47.3 |
) |
|
12.9 |
|
— |
|
|
(60.2 |
) |
|
|
(41.8 |
) |
|
(18.7 |
) |
|
(23.1 |
) |
Loss from operations as a % of
sales |
|
(11.5 |
)% |
|
|
|
|
|
|
(14.7 |
)% |
|
|
(7.9 |
)% |
|
|
|
|
(4.4 |
)% |
Loss before income taxes |
|
(114.2 |
) |
|
12.9 |
|
(10.4 |
) |
|
(116.6 |
) |
|
|
(94.3 |
) |
|
(18.7 |
) |
|
(75.7 |
) |
Income tax benefit |
|
(33.7 |
) |
|
3.3 |
|
(2.6 |
) |
|
(34.4 |
) |
|
|
(29.6 |
) |
|
(10.4 |
) |
|
(19.3 |
) |
Net loss |
|
(80.5 |
) |
|
9.5 |
|
(7.8 |
) |
|
(82.2 |
) |
|
|
(64.7 |
) |
|
(8.3 |
) |
|
(56.4 |
) |
Diluted net loss per
common share |
|
(1.42 |
) |
|
0.17 |
|
(0.14 |
) |
|
(1.45 |
) |
|
|
(1.17 |
) |
|
(0.15 |
) |
|
(1.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of
Adjusted EBITDA (3): |
Three Months Ended December 30, 2023 |
|
Three Months Ended December 31, 2022 |
Net loss (GAAP) |
$ |
(80.5 |
) |
|
$ |
(64.7 |
) |
Income tax benefit |
|
(33.7 |
) |
|
|
(29.6 |
) |
Interest expense |
|
42.8 |
|
|
|
42.7 |
|
Depreciation |
|
16.1 |
|
|
|
17.5 |
|
Amortization |
|
4.0 |
|
|
|
7.7 |
|
Impairment, restructuring and other |
|
(12.9 |
) |
|
|
18.7 |
|
Equity in loss of unconsolidated affiliates |
|
22.5 |
|
|
|
11.4 |
|
Interest income |
|
(0.1 |
) |
|
|
(3.4 |
) |
Share-based compensation |
|
16.0 |
|
|
|
20.9 |
|
Adjusted EBITDA (Non-GAAP) |
$ |
(25.8 |
) |
|
$ |
21.2 |
|
|
|
|
|
Note: See
accompanying footnotes. |
The sum of the
components may not equal due to rounding. |
|
(1) Basic net income (loss) per common share amounts are
calculated by dividing net income (loss) by the weighted average
number of common shares outstanding during the period.
(2) Diluted net income (loss) per common share amounts are
calculated by dividing net income (loss) by the weighted average
number of common shares, plus all potential dilutive securities
(common stock options, performance shares, performance units,
restricted stock and restricted stock units) outstanding during the
period.
(3) Reconciliation of Non-GAAP Measures
Use of Non-GAAP Measures
To supplement the financial measures prepared in
accordance with U.S. generally accepted accounting principles
(“GAAP”), the Company uses non-GAAP financial measures. The
reconciliations of these non-GAAP financial measures to the most
directly comparable financial measures calculated and presented in
accordance with GAAP are shown in the tables above. These non-GAAP
financial measures should not be considered in isolation from, or
as a substitute for or superior to, financial measures reported in
accordance with GAAP. Moreover, these non-GAAP financial measures
have limitations in that they do not reflect all the items
associated with the operations of the business as determined in
accordance with GAAP. Other companies may calculate similarly
titled non-GAAP financial measures differently than the Company,
limiting the usefulness of those measures for comparative
purposes.
In addition to GAAP measures, management uses
these non-GAAP financial measures to evaluate the Company’s
performance, engage in financial and operational planning,
determine incentive compensation and monitor compliance with the
financial covenants contained in the Company’s borrowing agreements
because it believes that these non-GAAP financial measures provide
additional perspective on and, in some circumstances are more
closely correlated to, the performance of the Company’s underlying,
ongoing business.
Management believes that these non-GAAP
financial measures are useful to investors in their assessment of
operating performance and the valuation of the Company. In
addition, these non-GAAP financial measures address questions
routinely received from analysts and investors and, in order to
ensure that all investors have access to the same data, management
has determined that it is appropriate to make this data available
to all investors. Non-GAAP financial measures exclude the impact of
certain items (as further described below) and provide supplemental
information regarding operating performance. By disclosing these
non-GAAP financial measures, management intends to provide
investors with a supplemental comparison of operating results and
trends for the periods presented. Management believes these
non-GAAP financial measures are also useful to investors as such
measures allow investors to evaluate performance using the same
metrics that management uses to evaluate past performance and
prospects for future performance. Management views free cash flow
as an important measure because it is one factor used in
determining the amount of cash available for dividends and
discretionary investment.
Exclusions from Non-GAAP Financial
Measures
Non-GAAP financial measures reflect adjustments
based on the following items:
- Impairments, which are excluded because they do not occur in or
reflect the ordinary course of the Company’s ongoing business
operations and their exclusion results in a metric that provides
supplemental information about the sustainability of operating
performance.
- Restructuring and employee severance costs, which include
charges for discrete projects or transactions that fundamentally
change the Company’s operations and are excluded because they are
not part of the ongoing operations of its underlying business,
which includes normal levels of reinvestment in the business.
- Costs related to refinancing, which are excluded because they
do not typically occur in the normal course of business and may
obscure analysis of trends and financial performance. Additionally,
the amount and frequency of these types of charges is not
consistent and is significantly impacted by the timing and size of
debt financing transactions.
- Discontinued operations and other unusual items, which include
costs or gains related to discrete projects or transactions and are
excluded because they are not comparable from one period to the
next and are not part of the ongoing operations of the Company’s
underlying business.
The tax effect for each of the items listed
above is determined using the tax rate and other tax attributes
applicable to the item and the jurisdiction(s) in which the item is
recorded.
Definitions of Non-GAAP Financial
Measures
The reconciliations of non-GAAP disclosure items
include the following financial measures that are not calculated in
accordance with GAAP:
Adjusted gross margin: Gross margin excluding
impairment, restructuring and other charges / recoveries.Adjusted
income (loss) from operations: Income (loss) from operations
excluding impairment, restructuring and other charges /
recoveries.Adjusted income (loss) before income taxes: Income
(loss) before income taxes excluding impairment, restructuring and
other charges / recoveries, costs related to refinancing and
certain other non-operating income / expense items.Adjusted income
tax expense (benefit): Income tax expense (benefit) excluding the
tax effect of impairment, restructuring and other charges /
recoveries, costs related to refinancing and certain other
non-operating income / expense items.Adjusted net income (loss):
Net income (loss) excluding impairment, restructuring and other
charges / recoveries, costs related to refinancing and certain
other non-operating income / expense items, each net of
tax.Adjusted diluted net income (loss) per common share: Diluted
net income (loss) per common share excluding impairment,
restructuring and other charges / recoveries, costs related to
refinancing and certain other non-operating income / expense items,
each net of tax.Adjusted EBITDA: Net income (loss) before interest,
taxes, depreciation and amortization as well as certain other items
such as the impact of the cumulative effect of changes in
accounting, costs associated with debt refinancing and other
non-recurring or non-cash items affecting net income (loss). A form
of Adjusted EBITDA is used in agreements governing the Company’s
outstanding indebtedness for debt covenant compliance purposes.
Adjusted EBITDA as used in those agreements includes additional
adjustments to the Adjusted EBITDA presented in the reconciliations
above which may decrease or increase Adjusted EBITDA for purposes
of the Company’s financial covenants.
For the three months ended December 30, 2023,
the following items were adjusted, in accordance with the
definitions above, to arrive at the non-GAAP financial
measures:
- During fiscal 2022, the Company began implementing a series of
Company-wide organizational changes and initiatives intended to
create operational and management-level efficiencies. These changes
and initiatives include reducing the size of the supply chain
network, reducing staffing levels and implementing other
cost-reduction initiatives. During the three months ended December
30, 2023, the Company recorded recoveries of $5.8 million in the
“Cost of sales—impairment, restructuring and other” line in the
Condensed Consolidated Statements of Operations and incurred costs
of $2.0 million in the “Impairment, restructuring and other” line
in the Condensed Consolidated Statements of Operations associated
with this restructuring initiative, primarily related to the sale
of certain previously-reserved inventory at amounts in excess of
estimated net realizable value, partially offset by employee
termination benefits and facility closure costs.
- During the three months ended December 30, 2023, the Company
recorded a gain of $12.1 million in the “Impairment, restructuring
and other” line in the Condensed Consolidated Statements of
Operations associated with a payment received in resolution of a
dispute with the former ownership group of a business that was
acquired in fiscal 2022.
- During the three months ended December 30, 2023, the Company
recorded a pre-tax impairment charge of $10.4 million associated
with its investment in Bonnie Plants, LLC in the “Equity in loss of
unconsolidated affiliates” line in the Condensed Consolidated
Statements of Operations.
For the three months ended December 31, 2022,
the following items were adjusted, in accordance with the
definitions above, to arrive at the non-GAAP financial
measures:
- During fiscal 2022, the Company began implementing a series of
organizational changes and initiatives intended to create
operational and management-level efficiencies. During the three
months ended December 31, 2022, the Company incurred costs of $9.5
million in the “Cost of sales—impairment, restructuring and other”
line in the Condensed Consolidated Statements of Operations and
$5.0 million in the “Impairment, restructuring and other” line in
the Condensed Consolidated Statements of Operations associated with
this restructuring initiative, primarily related to employee
termination benefits, facility closure costs and impairment of
property, plant and equipment.
Forward Looking Non-GAAP Measures
In this release, the Company presents certain
forward-looking non-GAAP measures. The Company does not provide
outlook on a GAAP basis because changes in the items that the
Company excludes from GAAP to calculate the comparable non-GAAP
measure, described above, can be dependent on future events that
are less capable of being controlled or reliably predicted by
management and are not part of the Company’s routine operating
activities. Additionally, due to their unpredictability, management
does not forecast many of the excluded items for internal use and
therefore cannot create or rely on a GAAP outlook without
unreasonable efforts. The occurrence, timing and amount of any of
the items excluded from GAAP to calculate non-GAAP could
significantly impact the Company’s GAAP results. As a result, the
Company does not provide a reconciliation of forward-looking
non-GAAP measures to GAAP measures, in reliance on the unreasonable
efforts exception provided under Item 10(e)(1)(i)(B) of Regulation
S-K.
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