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Original Source: FD (FAIR DISCLOSURE) WIRE
. Jim King, The Scotts Miracle-Gro Company, VP, Corporate Communications and Investor Relations . Jim Hagedorn, The Scotts Miracle-Gro Company, Chairman and CEO . Dave Evans, The Scotts Miracle-Gro Company, CFO
. Sam Darkatsh, Raymond James, Analyst . Gordon Erickson, The Scotts Miracle-Gro Company, CEO, Smith & Hawken . Bill Chappell, SunTrust, Analyst . Chris Nagel, The Scotts Miracle-Gro Company, EVP, North American Consumer Business . Doug Lane, Avondale Partners, Analyst
. Jim Barrett, CL King & Associates, Analyst . Joe Altobello, CIBC World Markets, Analyst . Alice Longley, Buckingham, Analyst . Eric Bossard, Cleveland Research, Analyst . Tim Portland, The Scotts Miracle-Gro Company, SVP, Scotts LawnService . Connie Maneaty, Prudential, Analyst . Olivia Tong, Merrill Lynch, Analyst
SMG reported that its 1Q07 global sales increased by 9% to $271m, up from $250m in 1Q06. Net loss in 1Q07 was $59.4m or $0.88 per share. On an operating basis, SMG reported a Co.-wide loss of $92.7m for 1Q07 vs. $83.7m a year earlier.
A. Key Data From Call 1. 1Q07 global sales = $271m. 2. 1Q07 net loss = $59.4m. 3. 1Q07 Co.-wide operating loss = $92.7m. 4. 1Q07 net loss per share = $0.88 per share.
S1. Opening Comments (J.K.) 1. Highlights: 1. Annual shareholders meeting will be held on 01/25/07 10:00 ET at Marysville, Ohio.
2. IR department has retained Rivel Research to help Co. in
completing a perception study.
S2. Business Performance (J.H.) 1. Highlights: 1. While '1Q' usually represents less than 10% of total-year sales, it is one of the most critical times for business. 2. In consumer businesses, both in the US and international, sales teams spent last several months working closely with all of Co.'s retailers to further refine 2007 programs and prepare for major shipments that will begin next month. 3. Marketing teams have been working with advertising agencies and media planners to ensure Co. has most effective messaging to consumers at the break of the season. 4. Supply chain team has been working through peak of manufacturing cycle to effectively manage Co.'s inventory levels, distribution, and volatile commodity markets. 5. In Scotts LawnService, Co. is making final adjustments to program improvements for spring and getting ready for new season marketing campaign. 1. Continues to reinforce message of customer service as Co. begins to increase staffing levels to meet upcoming surge in demand. 6. At Smith & Hawken, Co. has begun to reset stores after holiday
in preparation for the peak of outdoor living season. 7. Co. stated during analyst meeting that it expected a loss in the qtr. between $60-64m, and actually did slightly better than that. 1. Sales throughout 1Q07 were mostly in line with what Co. expected in consumer purchases, while low during off season,
continued to show that Co. is winning in the marketplace. 2. North America: 1. Had strong Dec., leading to 10% increase in sales for 1Q07. 2. Consumer activity during 1Q07 remained encouraging.
3. Examples: 1. Saw increases in consumer purchases of products in nearly every product category, including: 1. 8% increase in Ortho. 2. 12% improvement in growing media. 3. 8% improvement in plant food.
2. In Ortho, Co. continued to have success with Ortho Fire Ant
MAX, used by southern consumers, and Ortho Home Defense, a product that consumers can use around the perimeter of their home and inside in order to keep insects out of house. 1. These two segments of insect control category are particularly competitive. 3. The fact that Co. continues to see POS improvement and, presumably market share gains is an encouraging sign. 1. Expects 2007 to be another strong year for Ortho. 2. Introducing Ortho Home Defense MAX, a new product that provides 12-month insect control, and is committing
significant advertising dollars behind it. 3. Co. is working with retail partners on a number of in-store programs to help ensure the success of this product. 4. Weed: 1. Will be introducing Ortho Weed-B-Gon MAX plus Crab Grass Control, a new all-in-one product that makes lawn care easier and requires fewer applications.
2. Like Home Defense, a combination of advertising and in-store programs are being finalized that will be critical to this effort.
5. Growing Media: 1. In growing media, during 1Q07, consumer purchases of Miracle-Gro Moisture Control Potting Mix increased by 64%. 1. Meanwhile, purchases of Miracle-Gro Garden Soil improved
by 15%. 2. While numbers in qtr. might be small, growing media business has been posting double-digit POS gains for several years in a row, and Co. is confident to continue this track record in 2007. 6. LiquaFeed: 1. LiquaFeed maintained its momentum in 1Q07, resulting in an 8% increase in consumer purchases of plant food. 1. In 2006, it became Co.'s most successful new product launch ever, and Co. remains confident that as LiquaFeed enters its second season, it will continue to be popular with consumers. 2. Even though sales doubled projections for 2006, LiquaFeed has household penetration rate of less than 5%. 3. Will continue to put significant advertising effort behind this product this season and will work closely with retail partners as well. 4. Will be introducing new formulations of refills for LiquaFeed and drive messages that encourage repeat usage of product throughout growing season. 7. Lawns: 1. Repeat usage is key to growth of Co.'s lawns business. 2. Consumer purchases of lawn fertilizer and combination products increased 1% in 1Q07. 1. Since so few consumers fertilized during winter months, Co. does not believe the qtr. really gives it much insight. 8. Bonus S MAX: 1. As Co. prepares for spring season, it is encouraged by retailer support it is getting for Bonus S MAX, a new and innovative three-in-one product that fertilizes, kills weeds, and prevents fire ants.
2. Bonus S is a product uniquely formulated for lawns in Florida, parts of Texas, and other places where St. Augustine grass is prevalent.
3. Bonus S is by far one of Co.'s most successful products, and
Co. is hopeful to expand share even further with Bonus S MAX.
4. During analyst meeting last month, EVP of North America stated that lawns business in particular needs to re-examine some of previous marketing efforts and design advertising programs that attract new customers to the category. 1. This effort is well underway, and Co. is hopeful to see impact of this in 2007 and beyond. 9. Co. remains encouraged with discussions it has been having with all of its retail partners, regardless of channel. 10. Believes retail inventory levels entering the season are appropriate, and continues to work closely with retail partners in order to drive Co.'s business as well as theirs. 3. International: 1. Reported 9% sales growth. 2. Saw particularly strong results in UK, as Co. continued to see nice momentum in value-added growing media business. 3. Professional segment got off to a solid start. 1. As it gets ready for the season, Co. continues to see
positive signs. 4. Retailer support in Europe for LiquaFeed remains extremely strong, and Co. expects to see about $8m in incremental sales from this product. 1. Launch of LiquaFeed in Europe marks Co.'s first real effort to take a global approach to marketing one of its products, and is encouraged so far. 2. Encouraged by progress Co. is making to improve bottom-line performance in this business. 3. Continues to benefit from cost-savings initiatives in Europe. 4. These efforts, coupled with expected sales growth of 2-4% gives Co. confidence that it can get international on the
right track this year to achieve 7-9% increase in profitability.
5. Remains optimistic that Smith & Hawken can improve its
financial performance in 2007. 1. Sales in 1Q07 were up 6%, slightly behind what Co. expected. 2. Saw better-than-expected reduction in inventory levels. 6. New Store Format: 1. New California prototype continues to show strong results with higher-than-expected sales per sq. ft. and annualized sales trend. 2. Florida prototype is trailing what Co. is seeing in California, but surrounding retail area is still developing. 3. In Cleveland, Co. opened a third concept store right before holidays, and it has also showed encouraging signs. 4. As part of test-and-learn efforts, Co. will continue to monitor results of these concept stores to gain important learnings, it can apply to the rest of the business in the future. 5. As stated before, merchandising efforts in all of the stores will be critical in 2007 as Co. shifts focus away from decor and back to gardening heritage. 7. Scotts LawnService: 1. Had sales growth of 9%, slightly higher than what Co. expected for 1Q07.
2. Like core business, …