Net sales of $2.82 billion for the year, essentially flat from a year ago, were achieved after a 9 percent increase in the second half of the year, including a 10 percent increase in the fourth quarter.
Adjusted income from continuing operations for the year ended Sept. 30, 2013 was $174.4 million, or $2.79 per share, compared with $124.9 million, or $2.01 per share a year ago.
Those results exclude the impact of product registration and recall costs, as well as impairment, restructuring and other charges. Including those items, income from continuing operations was $161.2 million, or $2.58 per share in 2013, compared to $113.2 million, or $1.82 per share a year ago.
The strong earnings improvement was driven by a 6 percent reduction in selling, general and administrative expense (SG&A) as the result of Project Max. In addition, increased pricing, combined with cost-out efforts related to Project Max, contributed to a 100 basis point improvement in the Company’s adjusted gross margin rate.
"These results are a giant step forward in returning our business to a proper level of profitability and reflect the deep commitment of our team of associates around the world," said Jim Hagedorn, chairman and chief executive officer. "Despite dramatic delays in our season due to poor spring weather, consumers were highly engaged in the second half of the year, allowing us to exceed our guidance. Additionally, the acceleration of Project Max allowed us to move faster than we anticipated and put us in a good position entering next year.
"We continue to believe the consumer marketplace remains soft. Therefore, as we did in 2013, we will plan conservatively but look for opportunities to drive better-than-expected results. Our initial outlook is for sales growth of 2 to 3 percent and earnings per share growth of 10 to 15 percent in fiscal 2014, which could represent up to a 60 percent improvement in earnings over a two-year period."
Fourth-Quarter Details
Company-wide net sales increased 10 percent in the fourth quarter to $443.0 million, compared with $401.2 million during the same quarter a year ago. Global Consumer segment sales increased 12 percent in the fourth quarter to $347.5 million. Sales in the U.S. increased 15 percent during the quarter. Outside the U.S., sales increased 2 percent, excluding the impact of foreign exchange rates. The operating loss for the Global Consumer segment was $6.7 million during the fourth quarter, compared with a loss of $39.1 million a year ago. Consumer purchases at the Company’s largest U.S. retailers increased 6 percent in the fourth quarter, compared to a year ago.
Scotts LawnService sales increased 7 percent to $90.2 million in the fourth quarter, compared to $84.5 million during the same quarter a year ago. Operating income for the segment increased 10 percent during the quarter to $24.3 million, compared with $22.1 million a year ago.
The company-wide adjusted gross margin rate was 29.7 percent during the fourth quarter, compared with 26.2 percent during the same quarter a year ago. The year-over-year improvement was due to increased pricing, favorable commodity costs, increased sales volume and continued growth in the Scotts LawnService business.
SG&A in the fourth quarter decreased 6 percent, or $8.6 million, to $140.1 million, compared with $148.7 million a year ago. The year-over-year savings were driven by expense reduction as part of the Company’s Project Max initiative.
Adjusted loss from continuing operations was $11.1 million in the fourth quarter, or $0.18 per share, compared with a loss of $36.4 million, or $0.59 per share, a year ago. Those results exclude costs related to impairment, restructuring and other charges, as well as product registration and recall matters. Including those items, reported loss from continuing operations for the fourth quarter was $18.6 million, or $0.30 per share, compared with a loss of $36.6 million, or $0.60 per share, a year ago.
The quarter included an $11.6 million non-cash impairment charge related to the Ortho brand as part of the Company’s annual impairment review.
Full-Year Details
Company-wide net sales were flat in 2013 at $2.82 billion, as were Global Consumer sales at $2.53 billion. Scotts LawnService sales increased 5 percent to $257.8 million for the year, compared to $245.8 million a year ago. Consumer purchases at the Company’s largest U.S. retailers were in line with 2012.
On an adjusted basis, the company-wide gross margin rate increased 100 basis points to 35.0 percent for the year. The improvement was attributable primarily to increased pricing, cost-out efforts and other cost efficiencies, partially offset by planned commodity cost inflation and lower-than-expected sales volume.
SG&A decreased 6 percent, or $44.6 million, to $661.1 million, compared to $705.7 million a year ago. The year-over-year savings in nearly all areas were driven by the Company’s Project Max initiative.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $390.5 million, an increase of 29 percent, compared to $302.9 million a year ago.
For the full year, the Company recorded $20.3 million in impairment, restructuring and other charges, with $9.1 million attributed to its efforts to improve the profitability of its international operations.
The Global Consumer segment reported a 20 percent increase in operating income to $406.4 million for fiscal 2013, compared to $338.3 million a year ago. Scotts LawnService reported a 6 percent increase in operating income to $28.7 million during the year, compared to $27.0 million in fiscal 2012. The consolidated company-wide adjusted income from continuing operations before income taxes increased 39 percent to $274.3 million during fiscal 2013, compared to $197.1 million a year ago.
Cash flow from operations was $342 million in 2013, well above the Company’s original projections for the year due to better-than-expected inventory management and a non-recurring cash benefit from a recovery of taxes overpaid in 2012.
"Our focus in 2013 was to significantly improve margin and cash flow, and we succeeded," Hagedorn said. "In addition to hitting our earnings targets – even on lower sales than we originally projected – we also reduced our leverage ratio during the year and increased our quarterly dividend by 35 percent. That focus will remain core to our near-term thinking as we continue to drive shareholder value through a combination of improved performance and returning cash to shareholders."
