Scotts Miracle-gro Company (the) · NYSE:SMG
Scotts Miracle-gro Company (the) — Raymond James 41st Annual Institutional Investors Conference 2020
30 slides from Scotts Miracle-gro Company (the)'s conference presentation, Mar 2, 2020
Slide 1: Raymond James 41st Annual Institutional Investors Conference
Raymond James 41st Annual Institutional Investors Conference MARCH 2020 1
Slide 2: Safe Harbor Disclosure Statement
Safe Harbor Disclosure Statement under the Private Securities Litigation Act of 1995: Certain of the statements contained in this presentation, including, but not limited to, information regarding the future economic performance and financial condition of the Company, the plans and objectives of the
Slide 3: Today's discussion
Today’s discussion • Philosophy and track record for driving long-term shareholder value • Overview of our industry-leading U.S. Consumer business • Hawthorne: Building competitive advantages in a fast-growing category 3
Slide 4: Our approach to running the business has led to consistent growth and value creation
Our approach to running the business has led to consistent growth and significant value creation for shareholders 2-4% Sales Stable core and higher growth hydroponics 4-6% Operating Income Hawthorne margin benefits, SG&A control 8-10% EPS Share buybacks enhance EPS growth 10-12% Shareholder Return E
Slide 5: SMG shares have outperformed the market since Project Focus
SMG shares have outperformed the market since Project Focus was implemented despite setback in 2018 Total Shareholder Return vs S&P 500 120% SMG S&P 500 100% 80% 60% 40% 20% 0% -20% 5
Slide 6: U.S. Consumer remains the earnings and cash flow engine, Hawthorne driving growth
U.S. Consumer segment remains the earnings and cash flow engine of SMG, Hawthorne is driving growth FY 2019 Revenue % by Segment FY 2019 Net Profit % by Segment Other 6.5% Hawthorne Other 1.7% 9.0% Hawthorne 21.3% U.S. U.S. Consumer Consumer 72.3% 89.2% 6
Slide 7: Consistent top line growth since portfolio realignment in 2015
Scotts Miracle-Gro has delivered consistent top line growth since we began to realign our portfolio in 2015 Consolidated Net Sales ($ in millions) $3,156 $3,314 $2,663 $2,642 $2,371 $2,506 $2,189 2014 2015 2016 2017 2018 2019 2020E Acquisitions / Divestitures 1.6% 4.6% 3.2% 5.8% 5.2% 8.7% 0.0% Forei
Slide 8: 2020 earnings outlook puts SMG back on track
2020 earnings outlook puts SMG back on track after market challenges led to disappointing 2018 results Non-GAAP Adjusted Net Income1 Adj. Income EPS (Non-GAAP) 350 $7.00 300 $288 $6.00 $251 $237 250 $222 $5.00 $203 $212 $191 $5.05 200 $4.47 $4.00 $3.94 150 $3.58 $3.71 $3.00 $3.04 $3.27 100 $2.00 50
Slide 9: Pay-for-performance has led to consistent cash flow performance
Pay-for-performance has led to consistent cash flow performance with opportunities for further improvement Historical Cash Flow1 400 Project Focus 350 300 250 200 150 100 50 - Free Cash Flow Legal Adj. TruGreen Tax Adj. Operating Cash Flow Capital Expenditures SMG defines free cash flow as operating
Slide 10: Commitment to returning cash to shareholders
A commitment to returning cash to shareholders has been integral in driving value Share Repurchase / Dividend Activity by Fiscal Year $400 $2.23 $2.50 $2.14 $2.03 $350 $1.91 $1.76 $1.82 $2.00 $300 $250 $1.41 $1.23 $1.50 $200 $1.05 $150 $1.00 $0.63 $100 $0.50 $50 $0 $0.00 2010 2011 2012 2013 2014 201
Slide 11: Today's discussion
Today’s discussion • Philosophy and track record for driving long-term shareholder value • Overview of our industry-leading consumer goods business • Hawthorne: Building competitive advantages in a fast-growing category 11
Slide 12: U.S. Consumer: unique competitive advantages make Scotts the clear leader
U.S. Consumer A series of unique competitive advantages has made ScottsMiracle-Gro the clear leader in lawn & garden Industry-Leading Brands Products that Deliver Consumer-based innovation model delivers innovation Brands foster unrivaled consumer relationships to drive profitable growth In-Store Ex
Slide 13: Retail trends and favorable demographics should continue to benefit SMG
U.S. Consumer Retail trends and favorable demographics should continue to benefit SMG into the future Key trends • Brick-and-mortar retailers, especially home centers, continue to view lawn and garden as a destination category • Online retail is the fastest growing channel, but remains less than 5%
Slide 14: Millennial homeowners more likely to buy lawn and garden products
In many cases millennial homeowners are more likely than older generations to buy lawn and garden products P12M Household Purchase Incidence Base: Total Single-Family Detached Homeowners with a Grass Lawn 63% 66% 64% 64% 54% 51% 51% 50% 48% 47% 52% 47% 44% 50% 50% 49% 48% 47% 41% 45% 45% 45% 46% 46%
Slide 15: Innovation in R&D and Marketing key to future growth
U.S. Consumer Innovation in R&D and Marketing will be key in driving future growth especially with millenials Disruptive products and brands Successful transition to digital marketing 15
Slide 16: Roundup remains important to SMG performance
U.S. Consumer Roundup remains important to SMG performance, consumer engagement remains solid Key points • Roundup POS up more than 10 percent entering March • Ortho GroundClear continues to gain momentum, backed by high levels of advertising and retail support • While SMG serves as marketing agent
Slide 17: Retailers and consumers expected to remain highly engaged in 2020
U.S. Consumer We expect retailers and consumers to remain highly engaged in 2020, driving 1 to 3% full-year growth High engagement • Through first five fiscal months, consumer purchases up 8 percent entering critical weeks of season • All key categories higher • May-June comps are difficult and grow
Slide 18: Today's discussion
Today’s discussion • Philosophy for and track record driving long-term shareholder value • Overview of our industry-leading consumer goods business • Hawthorne: Building competitive advantages in a fast-growing category 18
Slide 19: Hawthorne has assembled a portfolio of industry-leading products
Hawthorne Gardening Company Hawthorne has assembled a portfolio of industry-leading products to service an expanding market • Our signature brands have led the market since 1976 • Opening world's 1st and largest cannabis-specific R&D facility (Kelowna, B.C.) • Conducting hemp research at R&D Field S
Slide 20: Nearly 90% of Hawthorne sales in U.S. and Canadian markets
Hawthorne Gardening Company Nearly 90% of Hawthorne sales in faster-growing U.S. and Canadian markets Total Sales by Geography North American Sales by Category 2020 Estimate 2020 Estimate CAD 8% Growing Controls 2% Environment 16% ROW 11% Nutrients 29% Media 16% U.S. 81% Lighting Hardware 21% 16% 20
Slide 21: Hawthorne sales back on track after 2018 challenges
Hawthorne Gardening Company Sales back on track after rapid growth was interrupted by significant regulatory and market challenges in 2018 Hawthorne Net Sales ($ in millions) Prior Year M&A Organic $762 $671 $91 $95 $345 $231 $287 $136 $30 $121 $136 $48 $9 $64 ($78) 2015 2016 2017 2018 2019 2020E 21
Slide 22: Building competitive advantages to serve a quickly evolving market
Hawthorne Gardening Company Building competitive advantages to serve a quickly evolving market OUR PLANS: Products that serve all market segments • Professional growers are the No. 1 target • At-home growers represent less than 10% of market • Breadth of portfolio appeals to both Unmatched technical
Slide 23: A bullish outlook on long-term Hawthorne prospects
Hawthorne Gardening Company A bullish outlook on long-term Hawthorne prospects Our viewpoint: • Major new markets likely to emerge over next several years • Consumer consumption poised to continue growing high-single digits • Hawthorne outpacing competitors • Market-leading product portfolio and bra
Slide 24: YTD performance trending above guidance
Hawthorne Gardening Company YTD performance trending above guidance and will likely provide upside to our current full-year outlook Current Hawthorne outlook • 12 to 15% sales growth with higher growth in U.S. indoor & hydroponic categories • YTD sales +50% entering March, will moderate due to stron
Slide 25: ScottsMiracle-Gro: Appealing for near- and long-term investors
ScottsMiracle-Gro: Appealing for both the near- and long-term investors What we expect • Continued strength at Hawthorne in 2020; long-term growth/margin improvement • Steady performance from U.S. Consumer segment • Continued focus on cash flow productivity • Financial flexibility to explore and/or
Slide 26: Appendix
Appendix Seo wa g& @
Slide 27: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial 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 th
Slide 28: Definitions of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures 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 and are utilized by management in evaluating the performance of the busin
Slide 29: Reconciliation of Non-GAAP Financial Measures: Free cash flow
Reconciliation of Non-GAAP Financial Measures Free cash flow: SLS Divestiture adjusted income (loss) per common share: 29
Slide 30: Reconciliation of Non-GAAP Financial Measures: SLS Divestiture adjusted income
Reconciliation of Non-GAAP Financial Measures SLS Divestiture adjusted income: 30
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