ANNUAL Analyst & Investor Day FEBRUARY 21ST, 2017

Transcription

1 ANNUAL Analyst & Investor Day FEBRUARY 21ST,

2 Agenda Welcome Overview/Strategy Store of the Future Live Goods overview Lawns, Tech, Controls overview Craft, Hydroponics overview Retail environment Store walk Lunch Q&A Jim King Jim Hagedorn Randy Coleman Mike Lukemire Emily Winters Mike Sutterer John Sass Josh Peoples Patti Ziegler Tim Martin Chris Hagedorn Mike Sutterer Mike Carbonara 2

3 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 forward-looking in nature. Actual results could differ materially from the forward-looking information in this presentation due to a variety of factors. Scotts Miracle-Gro encourages investors to learn more about these risk factors. A detailed explanation of these factors is available in the Company s quarterly and annual reports filed with the Securities and Exchange Commission. 3

4 Jim Hagedorn Chairman & CEO Project Focus Update Driving value by focusing on our core, maximizing the value of non-core assets, investing in high growth adjacent categories and returning cash to shareholders 4

5 Significant progress in executing against our Project Focus goals Focus on the Core Consumer engagement driving steady growth in U.S. core with consistent margin improvement Consumer is healthier and engaged Retailer relationships remain strong Robust innovation pipeline Strong commodity management Reconfigure portfolio Goal: Maximize value of non-core assets, acquire in faster growing areas like hydroponics, live goods SLS contributed to TruGreen JV Gavita, Botanicare expand hydro Live goods entry with Bonnie Bias to exit Europe remains in place Shareholder friendly Increase and maintain steady leverage, return cash to shareholders through dividends, share repurchase $500mm increase repurchase authorization Quarterly dividend increased 6% Repurchase activity ongoing 5

6 Net sales $2.84B FINANCIAL STRENGTH Record Results During Year 1 of executing Project Focus, SMG delivered another strong year, including record adjusted earnings per share *Non-GAAP Adjusted gross margin rate 33.7% 35.4% Strong management of commodity costs among key drivers of continued gross margin rate improvement 4% company-wide sales growth driven by 30+% growth in Hawthorne Gardening Company, 2% in U.S. core business *Non-GAAP Adjusted Pro forma EPS $3.53 $2.73B $3.76 FY15 FY16 Non-GAAP Proforma adjusted EPS in line with management guidance despite $0.22 dilution from SLS/TruGreen JV *Non-GAAP measure that excludes impairment, restructuring and other charges. See appendix for reconciliation of Non-GAAP measure to corresponding GAAP measure. 6

7 Shareholders have benefited from early execution efforts SMG DOW S&P FEB 2016 FEB 2017 SMG DOW S&P FEB 2014 FEB

8 Strong Q1 results, continued momentum expected in fiscal 2017 U.S. Core Business Innovation, strong retailer support and continued consumer engagement expected to drive 1-3% growth Place photo here Financial Discipline Increased focus on improving cash flow is designed to drive value and provide financial flexibility in 2017 and beyond. Place photo here Hydroponics Industry momentum expected to drive growth of 7-10%, supplemented by tuck-in deals and further integration of Gavita and Botantcare Place photo here 8

9 Randy Coleman Chief Financial Officer The Next Phase of Focus While ScottsMiracle-Gro has a long track record of steady cash flow, a dedicated and multi-year effort to improve is underway 9

10 Free cash flow has been consistent but improvement is key to Project Focus Free cash flow Operating cash flow Capital expenditures Historical impediments Cultural emphasis on sales and earnings vs. cash flow Frequency of cash charges excluded from non-gaap earnings and incentive payouts Keys to Improvement Maintain consistent growth Broaden decision making processes with lens on cash flow Align short- and long-term incentive pay with cash flow Enhance supply chain for greater efficiency and effectiveness SMG defines free cash flow as operating cash flow minus capital expenditures 10

11 Network & Asset Optimization Initiative is designed to enhance free cash flow Vision Modernize our network and business practices to boost shareholder value while meeting changing retailer demand Objectives Challenge company go-to-business paradigms Change structural practices to increase cash flow and ROIC Optimize manufacturing assets and locations Improve effective use of assets and 3rd party manufacturers Simplify points of inventory and distribution Remove redundancies and eliminate waste Value Value Goal FY17 Year End Cash Flow improvement Cost/EBIT improvement $30mm $7mm FY20 Year End Cash Flow improvement Cost/EBIT improvement $65+mm $25mm Network & Asset Optimization (February 8, 2017) 11

12 Focus on inventory and asset efficiency Challenge company go-to-business paradigms Network & Asset Optimization Change structural practices to increase cash flow and ROIC Invested in systems to optimize inventory levels Better leverage under-utilized manufacturing assets Align pipeline build strategies for new product launches to drive turns Implement safety stock strategies to reflect customer and/or item segmentation 12

13 Revise supply chain strategies to provide operational flexibility Optimize manufacturing assets and locations Network & Asset Optimization Improve effective use of assets and 3rd party manufacturers Optimize SMG Assets Improve line efficiencies and run rates at SMG plants to improve return on assets Increase throughput capacity of SMG line assets Leverage 3rd Party Assets Utilize contract manufacturing for improved seasonal capacity Evaluate payment terms and processes to improve cash flow 13

14 Modernize distribution flow to reflect changing environment Simplify points of inventory and distribution Network & Asset Optimization Remove redundancies and eliminate waste Greater leverage of retailers existing distribution infrastructures Reduce number of distribution points for non-growing media business Simplify fulfillment to increase number of full pallets and truckloads Increase pre-season direct-to-store loads on key items 14

15 Mike Lukemire President, Chief Operating Officer Poised for Growth Strong opportunities remain in our core U.S. portfolio, complemented by faster growth in emerging and adjacent categories 15

16 SMG remains positioned for continued growth and improved cash flow Reasons for optimism Continued retailer support Initiatives that drive growth in core brands Partnerships that tap new areas of growth Strong play into hydroponic channel Discipline that contains costs, improves cash flow and financial flexibility 16

17 Consistent growth requires a solution mindset to respond to consumer needs Yesterday s paradigm Specific product attributes that allowed consumers to create a lawn or garden as a status symbol Lush, green lawns Effective chemicals Large suburban yards Environmental ambivalence Today s paradigm Lawns and gardens are a lifestyle choice, reflecting the personalities and values of consumers Instant gratification Environmental stewardship Urban living Legal cannabis growing Available on my terms Our challenge A collaborative approach will allow us to execute against these and other operational strategies Live goods and complete systems Focus on environmental solutions Reduced confusion, easier shopping Continued focus on hydroponics Direct-to-consumer options 17

18 The key to winning: A strong, reliable and consistent leadership team A winning team Consistent leadership in key operating roles Average SMG tenure: 16 years Consistent incentive pay plans create a team approach 18

19 Future Garden Center Emily Winters VP Business Execution 19

20 The Future Garden Center addresses shifting consumer expectations TODAY people buy goods & services > TOMORROW people will buy a better way of living 20

21 The current retail environment does not promote solutions selling Consumer Project: Tomato Container Garden 1 Tomato Plant 2 Soil / Potting Mix 3 4 Plant Food Container 5 Tomato Cages 21

22 main store The Future: An orchestrated parking shopping experience entry 2 parking 22

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24 Live Goods & Gardens Mike Sutterer General Manager, Live Goods John Sass General Manager, Gardens 24

25 Bonnie Plants Partnership 25

26 Our new partnership focuses on each company s core strengths Bonnie Core Strengths SMG Core Strengths Growing Distribution Marketing R&D SMG acquired 25% stake in Bonnie in

27 SMG will win two ways with our Bonnie Partnership 1. Drive Innovation and 2. Driving Solutions Selling Growth on Bonnie (Increase attachment of SMG soils) + 27

28 With Bonnie, we re creating new retail concepts to drive solutions selling Concept Artwork 28

29 We re already building the Bonnie + Miracle-Gro connection in store 29

30 We re driving the Bonnie + Miracle-Gro connection outside the store Miracle-Gro Soils TV & Digital - Featuring Bonnie Bonnie TV & Digital - Featuring Miracle-Gro Soils Project Videos & Digital Content Even Bonnie delivery trucks will feature Miracle-Gro 30

31 Lawns & Technology Josh Peoples General Manager, Lawns Patti Ziegler Chief Digital and Marketing Services Officer 31

32 The Scotts Play provides a path for growth Innovation Non-Core Category Growth Sales Support Solution Selling Integrated Supply Chain Marketing and Media Collaboration Win Events Shared Risk / Shared Reward 32

33 Strong Retail Integration and Collaboration 33

34 And the result Total Lawns +12% Lawn Fertilizers +8% *Past 6 month Unit Performance SMG Internal Data. June-Dec

35 WHAT S NEW FOR 2017 Early push and drive loyalty with Scotts + Miracle-Gro 35

36 WHAT S NEW FOR 2017 New campaign connects & activates consumers 36

37 WHAT S NEW FOR 2017 New campaign connects & activates consumers 37

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39 The GRO Experience Using technology to increase the consumer s level of success in their Lawn & Garden through a personalized experience Core platforms Internet of Things devices Connected devices will move to Scotts branding in 2017 Business technology supporting direct-to-consumer Mobile Apps 39

40 CONSUMER ENGAGEMENT

41 Water Innovation Launch Connected Yard Smart Irrigation Controller Smart Soil Sensor Smart Water Timer Think Drip Irrigation Innovation Landscapes Potted Plants Raised Beds Apply Healthy Simplify Auto Feeding Innovation LiquaFeed for Lawns Save Sense 41

42 The GRO Retail Experience 42

43 Controls Tim Martin General Manager, Controls 43

44 Growing the category with a powerful portfolio of brands 44

45 Roundup will extend into new segments & grow the category NEW in 2017! All-in-one formula kills all major types of lawn weeds without harming your grass Complete Weed Solution 45

46 Ortho Home Defense delivers modern total home protection NEW in 2017! Ortho Home Defense extends into Total Home Protection 46

47 Tomcat brand becomes the leader in Animal Nuisance NEW in 2017! The #1 brand in Rodent Control introduces a line of Animal Repellent Products 47

48 Hydroponics Expert & Craft Chris Hagedorn General Manager, Hawthorne Mike Sutterer General Manager, Craft 48

49 Hawthorne structure revised to fully exploit craft and expert opportunities Craft (Naturals, Mass Hydro & Urban) Unique in character/attributes to traditional mass products Sold in all channels except Hydro stores Designed to appeal to the next generation of gardeners Includes our hydro brands sold in Mass channel Expert (Hydro) Our highest quality and most specialized products Sold predominantly in Hydro stores High margin and higher priced Scaled for hobbyists and larger scale growers 49

50 Craft has strong growth potential Consumers of craft hydroponic products expect to find them in mainstream retailers Strong Interest 38% TOTAL POTENTIAL 52% Current 14% Now Next TOTAL 50

51 Craft gardeners want to grow a wide variety of crops 365 days a year What they want to grow Vegetables 85% Fruits 76% Herbs 69% Flowers 45% What motivates them Grow 365 days Use less water Grow any plant Grow own food Less work 51

52 We ve built 2 Craft hydro brands Each with a unique positioning 52

53 In just 12 months we ve developed a innovative line of easy hydro solutions Industry Standard Innovative New Hydro Growing System Grow Pail Line-up includes nutrients, supplements & lighting 53

54 In-store merchandising & relevant digital media will reach new hydro consumers 54

55 Hawthorne structure revised to fully exploit craft and expert opportunities Craft (Naturals, Mass Hydro & Urban) Unique in character/attributes to traditional mass products Sold in all channels except Hydro stores Designed to appeal to the next generation of gardeners Includes our hydro brands sold in Mass channel Expert (Hydro) Our highest quality and most specialized products Sold predominantly in Hydro stores High margin and higher priced Scaled for hobbyists and larger scale growers 55

56 Strong outlook remains in expert, where double-digit growth has been the norm A strong track record Hawthorne brands have 3-year sales growth CAGR of >20% 7% growth assumed in economic base case to justify acquisitions 2017 guidance assumes 10% growth Quarter Growth Rates Will Vary Hydroponic growth rates historically can vary greatly due to 3 main reasons: 1. Consumable vs Project sales mix 2. Timing of promotions 3. Distributor Buying Patterns 56

57 The expert hydroponic marketplace continues to evolve at a rapid pace Societal tailwinds 28 states now allow the legal cultivation of cannabis Most cannabis is grown in the U.S. using hydroponic methods Marketplace provides opportunities to serve consumers as well as large commercial operations Our vision: Become the leading solutions provider for retail and commercial hydroponics 57

58 Two years into the Hawthorne journey, key success drivers are emerging What we said we would do: Keep the culture intact Learn from our partners & immerse Smooth transition for our suppliers, retailers and distributors Continue the momentum for each business Integration is proceeding on all fronts while business optimization efforts have begun, acquisition activity continues and Hawthorne achieves its financial targets 58

59 Hawthorne Key Objectives: 2017 & Beyond Integration & Optimization Full integration of core businesses Drive Synergies Brands, Sales, Operations One Team Best-in-Class Hydro Service Adapt to a maturing marketplace Easiest to do business with across our total portfolio of brands M&A Progress Keep seeking and executing tuck in opportunities Be more well rounded in additional hydro categories 59

60 Hawthorne Key Objectives: 2017 & Beyond Maximize Brands that Overlap & Drive Innovation Integration & Optimization Full integration of core businesses One Sales Team Drive Synergies Brands, Sales, Operations One Team Professional Category Management 60

61 Hawthorne Key Objectives: 2017 & Beyond Support Revenue Growth Integration Best-in-Class & Optimization Hydro Service Full Adapt integration to a maturing of core marketplace businesses Drive Easiest Synergies to do business with across Brands, Sales, our total portfolio of Operations brands One Team Execute Operational Synergies Common ERP Execution 61

62 Hawthorne Key Objectives: 2017 & Beyond M&A Progress Keep seeking and executing tuck in opportunities Be more well rounded in additional hydro categories Potential future growth Category leading brands still exist in the marketplace We will explore opportunities for tuck in deals that compliment our market position in Lighting, Nutrient & Durables Research and Development partnerships will be targeted to drive our innovation platforms 62

63 Retail Review Mike Carbonara President, North America Sales 63

64 SMG is evolving with the changing retail environment Omni-Channel Growth Transact with the consumer where they re searching, and deliver the product instore or to home Retailer Productivity & Collaboration Supply chain collaboration achieves shared efficiencies and local assortments increase product relevancy Solutions Selling equals Category Growth Only SMG provides the total solution for the retailer and the consumer. Our products coupled together provide inspiration into the category, unmatched problem/solutions, and guaranteed consumer satisfaction 64

65 Retail Review Solutions Selling Place photo here Aligned Promotions Place photo here Retailer Partnerships Place photo here 65

66 The SMG Field Sales team is our army at retail Local Relationships Place photo here Educating the consumer Place photo here Merchandising in store Place photo here 66

67 SMG growth is dynamic across all channels of trade Grow the category Grow faster than the store average 67

68 Appendix 68

69 Reconciliation of Non-GAAP Financial Measures The Company reports its financial results in accordance with U.S. generally accepted accounting principles ( GAAP ). In addition to GAAP measures, the Company uses certain non-gaap measures to manage the business and evaluate performance because it believes that these measures provide additional meaningful comparison between current results and results in prior operating periods and, in some circumstances, may be more closely correlated to the performance of the Company's underlying, ongoing business. The Company believes that disclosure of these non-gaap financial measures therefore provides useful supplemental information to investors or other users of the financial statements, such as lenders. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company s reported results prepared in accordance with GAAP. This presentation includes the following financial measures that are not calculated in accordance with GAAP: Adjusted gross profit This measure excludes charges or credits relating to impairments, restructurings, discontinued operations and other unusual items. The comparable GAAP measure is reported gross profit. Pro forma adjusted income (loss) per common share In addition to the items excluded from adjusted gross profit, pro forma adjusted income (loss) per common share also excludes charges or credits incurred by the TruGreen Joint Venture that are apart from and not indicative of the results of its operations, including transaction related costs, restructurings and other discrete projects or transactions including a non-cash fair value write-down adjustment on deferred revenue and advertising as part of the transaction accounting. Pro forma adjusted income (loss) per common share also includes income (loss) from discontinued operations related to the SLS Business; however, excludes the gain on the contribution of the SLS Business to the TruGreen Joint Venture. The comparable GAAP measure is reported diluted income (loss) per common share from continuing operations. In accordance with Regulation G, the Company has provided a reconciliation of each non-gaap financial measure to its most directly comparable financial measure calculated and presented in accordance with GAAP. These reconciliations are provided solely for the purpose of complying with Regulation G and not as an indication that these non-gaap financial measures are substitutes for any of the Company s GAAP financial measures. 69

70 Reconciliation of Non-GAAP Financial Measures 70

71 Reconciliation of Non-GAAP Financial Measures 71