Scotts Miracle-Gro Company (The) (SMG)

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The Scotts Miracle-Gro (SMG)

Q4 2012 Earnings Call

November 08, 2012 9:00 am ET


Jim King - Senior Vice President of Investor Relations & Corporate Affairs

James Hagedorn - Executive Chairman and Chief Executive Officer

David C. Evans - Chief Financial Officer, Principal Accounting Officer and Executive Vice President of Strategy & Business Development

Barry W. Sanders - President and Chief Operating Officer

Michael C. Lukemire - President of Southeast Region

James R. Lyski - Chief Marketing Officer and Executive Vice President


Budd Bugatch - Raymond James & Associates, Inc., Research Division

Olivia Tong - BofA Merrill Lynch, Research Division

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

David S. MacGregor - Longbow Research LLC

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

William M. Reuter - BofA Merrill Lynch, Research Division

Alice Beebe Longley - The Buckingham Research Group Incorporated

Constance Marie Maneaty - BMO Capital Markets U.S.

James Barrett - CL King & Associates, Inc., Research Division

Jason Gere - RBC Capital Markets, LLC, Research Division



Good morning, and welcome to the fourth quarter 2012 earnings conference call. [Operator Instructions] Thank you. Jim King, you may begin your conference.

Jim King

Thanks, Amber. Good morning, everyone, and thanks for joining The Scotts Miracle-Gro year-end conference call. With me here in Marysville this morning are several members of our executive team, including Jim Hagedorn, our Chairman and CEO; Barry Sanders, our President; and Dave Evans, our CFO.

Jim will get started shortly with some brief remarks about the results we reported today, as well as our thoughts entering fiscal 2013. Dave will then walk through the financials. When they are done, we'll take your questions, and Barry and others will join us for the Q&A.

As many of you know, we have moved up the timing of our annual Analyst Day to December 14. Given the proximity of that meeting to today's event, we will not be providing any direct guidance related to our 2013 outlook. We would ask you to keep that in mind during the Q&A session and keep your questions confined to the topics related to the results we announce today.

Speaking of Analyst Day, the event will be held at the Waldorf Astoria in New York. We already have about 80 people registered for the event, so if you haven't already done so, please register by sending us an e-mail at, or you can call my assistant, Heather Scott at (937) 578-5968. We expect the meeting to begin at about 9:00 a.m. Presentations will conclude prior to lunch, and we'll conduct a Q&A session with the management near the end of the one session. We're still getting some of the details put together and will communicate more to you in the weeks ahead.

With that, let's move on to the call. I want to remind everyone that our comments this morning will contain forward-looking statements. As such, actual results may differ materially. Due to that risk, Scotts Miracle-Gro encourages investors to review the risk factors outlined in our Form 10-K, which is filed with the SEC.

If you did not receive a copy of today's press release, you can find it on the Investor Relations portion of our website. As a reminder, this call is being recorded and an archived version of the call will be available on the website as well.

If we make any comments related to non-GAAP financial measures not covered in the press release, we will provide those on the website.

With that, let me turn the call over to Jim Hagedorn to discuss our performance.

James Hagedorn

Thanks, Jim, and good morning, everyone. I do want to take a quick moment before I get going on the script just to kind of remind everybody how bad things are in New York. I can tell you, at our house, we still don't have power. My aunt, who's 90 years old lives in a road -- in a cold house with no power, and there's no gasoline to buy there. Everything is like 4-hour long lines if you want to get gas. And most people don't have enough gas to go to the gas station at this point. And then we had a 6 inches of snow last night, and so it's just one thing after another. I just think the next thing is locusts or something. But I'm not sure how people can help, except it's just been a terrible response. And I don't think most people are seeing it, which is that the electric grid is just smashed, at least on the North Shore of Long Island.

Anyway, back to business. The results you saw this morning for the quarter and full year were in line with what we told you to expect at the end of the third quarter. So there's not a lot of news there. But the story that played out over the course of 2012 is an important one for us, one that will inform our plans for 2013 and keep us focused on getting our earnings back to an appropriate level. I want to share some of the headlines from the year and help you better understand what worked, what didn't work and how we're adjusting.

I'll start by giving you a quick recap on the year and then discuss progress we've made over the last 90 days to shape our plans for the year we're in. I'll start by discussing the U.S. and then touch upon our international businesses, where sales for the year were down 4%, but flat when excluding foreign exchange. Then I'll discuss LawnService, where our sales were up 4% for the year.

Since the Analyst Day is just 5 weeks away, we'll hold back on providing many details around our 2013 plans until then.

As for 2012, consistent with the revised guidance we provided in August, sales in the Global Consumer segment were flat for the year and up 1% in the quarter. Sales in the U.S. side of the business were up 1% for the year and down 3% in the quarter. Consumer purchases for our products in the U.S., as measured by POS at or from our largest retailers, were up 2% for the year.

It was a strange year in the U.S. consumer business, of that, there's little doubt. We got out of the gate strong with high levels of consumer engagement in March, in fact, record levels. And from there, consumer activity in the U.S. was well below expectations until we got to the end of the year. The consumer purchase of our products related to fall lawn and garden activity, which is typically August through October, were up 7%.

Even though our full year growth was below what we have planned, we're pleased to see strong market share gains in almost all categories, and that's a point I want to emphasize.

We continued to outperform the category. In fact, that was one of the goals we had entering the year. So what you're seeing is that consumers will walk away from the category before they walk away from our brands. Part of the reason they stick with us is because we have a history of providing them with better solutions.

And that was evident again in 2012. Where we had innovation, we saw a strong consumer response.

POS in Ortho was up 13%. It was a solid season for controls across the board, and we were aided by strong consumer interest in our new battery-operated sprayer. Retailer support for the brand remains high, and we continue to see the applicator as driving consumer activity.

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