Dave Evans, CFO. March 10 th, 2009

Transcription

1 The Scotts Miracle-Gro Company Dave Evans, CFO The Raymond James 30 th Annual Institutional Investors Conference March 10 th,

2 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 company s management, and the company s assumptions regarding such performance and plans are forwardlooking in nature. Actual results could differ materially from the forward-looking information in this presentation due to a variety of factors. The Scotts Miracle-Gro Company encourages investors to learn more about these risk factors. A detailed explanation of these factors are available in the company s quarterly and annual reports filed with the Securities and Exchange Commission. 2

3 Why ScottsMiracle-Gro Our strengths, resilience, and long-term plan create a compelling story What will continue to set us apart Clear and strong market leadership Unrivaled relationships with consumers & retailers A world-class supply chain An experienced leadership team Comprehensive plans to drive long-term growth We are focused on redefining our leadership position to further drive growth that enhances shareholder value 3

4 Strong long-term prospects We believe we can continue to drive strong earnings growth and improvement in free cash flow How we will succeed: Game changing innovation that will drive growth Regional execution designed to capture share in under-penetrated markets $300 to $500 million of incremental growth $50 million in cost savings $100 million improvement in working capital Reduced debt levels to provide increased financial flexibility Increased focus on cash flow and asset productivity 4

5 In the near-term Across the U.S. business, our competitive advantages will help drive improvement in 2009 Cautious optimism for 2009 An historically resilient category Gardening remains the No. 1 outdoor leisure activity Early markets continue to demonstrate strong consumer engagement Strong retailer support, improved shelf-space Cocooning trends Increases in edible gardening Growth through product innovation 5

6 Overcoming the economy Despite broader issues, we are entering the 2009 season with cautious optimism A moderating macro environment Falling commodity prices Lower interest rates Volume increases from U.S. private label business Regional marketing efforts more targeted toward local needs 6

7 Private Label The departure of a major competitor has provided SMG a unique opportunity to gain share, drive profits Approximately $100 million of incremental volume: Vigoro lawn fertilizer at Home Depot Vigoro plant food at Home Depot Expert Gardener soils at Walmart By leveraging our supply chain, sales force and other overhead, private label will be accretive to earnings 7

8 Lawn fertilizer and grass seed. With higher prices in place, our marketing efforts will focus on value 1. Creating a powerhouse Turf Builder franchise across the lawns portfolio 2. Clearly communicating our product advantages (The Scotts Advantage). 3. Reducing our price premium at the shelf 4. Investing and winning at the local level 8

9 Controls Led by Home Defense, our pest control presence continues to expand as we enter new categories in 2009 More new product launches in 2009 than any year in Ortho s 103 year history Focusing on the eco-minded consumer Strengthening core weed and insect businesses Entering rodenticide category $100M category No category leader 9

10 Controls Roundup s growth will continue from extending Pump N Go and investing to extend the season Roundup Pump n Go was our most successful new product launch ever In 2009, expanding Pump n Go to Extended Control Poison Ivy Tough Brush Europe Increasing advertising and in-store marketing by 30% to capture early season markets and extend POS through the end of summer National TV Radio National TV Radio

11 Gardens Expanding the Moisture Control portfolio in the garden soil and reinvigorating plant food will be key Building off success, increasing consumer education are key #1 reason plants fail is under/over watering Moisture Control Garden Soil is a natural extension of Moisture Control Potting Mix - 4 yr/cagr of 28% 50% of consumers buying plants don t feed Must create consumer need to feed mindset 11

12 Commodities Costs have retreated to historical levels and appear to have reached bottom in many of the commodity markets As of February 1 st : Urea requirements are 69% locked (i.e., melt urea, sized urea) Diesel, which was not hedged through Q1, is now 60% locked The price of potash has bucked overall commodity trends Relative Price Relative Commodity Costs Movemtents Over Time Relative Commodity Cost Movements Over Time Urea Corn Diesel LLDPE 0.50 Between materials and distribution, we now expect inflation of approximately $140 million in Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Source: Green Markets/EIA/Chemical Data/USDA/NYMEX/CBOT and internal forecast 12

13 The full year outlook Our guidance for 2009 benefits from higher sales, improved margins and lower interest $ in millions (except EPS) guidance Sales $3, % Gross margin rate 33.1% +100 bps bps SG&A $ % Income from operations $286 (1) - 4% Interest expense $82 $60 - $65 million Adjusted earnings per share (1) $2.05 $ $2.30 / share Free cash flow (2) $141 $150 - $170 million (early indications were $2.00 /share) (1) excludes restructuring and onetime charges of $20M (2) defined as cash provided by operating activities (GAAP defined) less capital expenditures 13

14 Redefining our Leadership Our success will be based on three platforms that must become embedded throughout ScottsMiracle-Gro 1. Creating a regional operating platform 2. Creating a consumer driven innovation culture 3. Maintaining our freedom to operate Goal: Generate $300 $500 million of incremental sales, reduce working capital by $100 million 14

15 A focus on Regionalization This model has been evolving for years in several areas of the North American business Over the last several years we have Begun developing more regionally specific products, especially for the Southeast Migrated away from national TV support to more local radio Focused more retailer support and decision making at the store level Begun migrating to a regional supply chain to drive efficiency We are now focused on creating an organizational structure best-suited to leverage these efforts 15

16 Why change is needed Market share opportunities are obvious, but growth requires us to meet the specific consumer needs SMG market share 41% 51% 43% 53% 43% 36% U.S. plant hardiness zones 16

17 Regional differences The start and duration of the lawn and garden season varies widely, making national media buys less efficient Seasonality and Timing Require Regional Messaging 9,000 6,000 Early Season Timing Fall Season Opportunity NE WE POS $ (000) 3, Calendar Week Northeast West 17

18 Regional Supply Chain Manufacturing and distribution strategies will deliver $50+ million in savings and $100+ million in working capital improvements by Leverage growing media s low-cost model to store and distribute fertilizer regionally along with growing media products Projected Savings $15+M 2. Rationalize the 3 rd party mixing warehouse network $20+M 3. Invest in regional fertilizer and liquids production capacity $15+M 18

19 Improving productivity Consolidation of our two national networks reduces lead times, costs and inventory TODAY: Two separate supply chain models Third party distribution network Growing Media production and distribution network 10 warehouses ship fertilizer, seed, durables, bird food, plant foods & controls to retailers 26 growing media plants produce locally and ship to retailers 19

20 Lower costs, better service Going forward, fertilizer will be shipped directly to home center stores with locally-produced growing media products TOMORROW: Product-Centric supply chain model Slower velocity case products Rationalized 3 rd party distribution network High velocity, full pallet, bagged products Co-distribution network 5 warehouses ship seed, durables, bird food, plant foods & controls to retailers. Growing media plants produce growing media products locally and ship with fertilizer to retailers (co-distribution) Benefits of Co-Distribution Model Lower storage, handling, and freight expenses Local, full-truckload shipments arrive same day, which reduces order lead times and maximizes POS opportunities for highly-seasonal fertilizer products Incremental co-distribution shipping points increases fertilizer shipping capacity during peak periods 20

21 Phase 1 underway Co-distribution in the Southeastern US marks our first step in developing our regional supply chain model Regional distribution update: Regional co-distribution of Scotts fertilizer and growing media to home center customers will leverage growing media s low-cost model Six sites in Phase 1 are live ; eight Phase 2 sites go live in FY 2010 Co-distribution sites go live schedule FY09 FY10 FY11 21

22 Phase 2 The next step will be to reduce our number of mixing warehouses in the U.S. from 10 to five Key Considerations: Existing network and contracts Co-distribution volume Major retailer RDC networks / customer pick-up programs Regional manufacturing initiatives: Fertilizer, Liquids Sourcing Plant warehouses Optimized inventory levels vs. service requirements Reduction of slow-moving inventory Scotts 3PL DC s Illustrative Example Retailers RDC s (includes planned sites) 22

23 Phase 3 Our regional manufacturing strategy will enable production closer to market demand and support a regional product strategy Key points: Liquid-filling pilot currently underway in the Southeast Efforts will reduce freight costs, improve inventory turns and free cash flow Key considerations: Make vs. buy strategy Regional bottling vs. formulation Regional sourcing opportunities In-line blow mold opportunities West (18%) RTU Ready-to-use products are generally 99% water CONC RTU Midwest (28%) RTU RTU Southeast (34%) Northeast (20%) 23

24 Why ScottsMiracle-Gro Our strengths, resilience, and long-term plan create a compelling story What will continue to set us apart Clear and strong market leadership Unrivaled relationships with consumers & retailers A world-class supply chain An experienced leadership team Comprehensive plans to drive long-term growth We are focused on redefining our leadership position to further drive growth that enhances shareholder value 24