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The Scotts MiracleGro Company Commmon Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 8, 2012 12:23PM
The Scotts MiracleGro Company Commmon (SMG) filed Quarterly Report for the period ended 2012-03-31.
Highlight of Business Operations:Net sales for the three months ended March 31, 2012 were $1.17 billion, an increase of 3.9% from net sales of $1.13 billion for the three months ended April 2, 2011. Net sales for the six months ended March 31, 2012 were $1.38 billion, an increase of 1.8% from net sales of $1.36 billion for the six months ended April 2, 2011. The change in net sales was attributable to the following:
Global Consumer segment net sales were $1.12 billion in the second quarter of fiscal 2012, an increase of 3.2% from the second quarter of fiscal 2011 and were $1.27 billion for the first six months of fiscal 2012, which is roughly flat as compared to the same period of fiscal 2011. For the three months ended March 31, 2012, foreign exchange rates unfavorably impacted net sales by 0.5% and increased net pricing favorably impacted net sales by 1.4%. For the six months ended March 31, 2012, foreign exchange rates unfavorably impacted net sales by 0.5% and increased net pricing favorably impacted net sales by 1.3%.
Global Consumer segment operating income decreased by $23.8 million, or 8.0%, and $38.1 million, or 15.6%, in the second quarter and first six months of fiscal 2012, respectively, as compared to the same periods of fiscal 2011. Excluding the impact of changes in foreign exchange rates, the decrease was 7.6% and 15.1% for the second quarter and first six months of fiscal 2012, respectively. The decrease was primarily driven by increased material costs and our planned incremental investment in media and marketing. The increased material costs drove gross profit declines of 170 and 210 basis points for the second quarter and first six months of fiscal 2012, respectively. The increased advertising expense was $20.1 million and $18.1 million during the second quarter and first six months of fiscal 2012, respectively. These increases in costs were partially offset by a reduction in compensation, including benefits of the fiscal 2011 restructuring plan.
Cash used in operating activities totaled $620.4 million and $604.0 million for the six months ended March 31, 2012 and April 2, 2011, respectively. Excluding the impact of discontinued operations, cash used in operating activities increased approximately $86.6 million. The increase in cash outflows was primarily the result of lower net income from continuing operations of $28.6 million and an increase in cash used for working capital purposes of $68.2 million. The increase in working capital was primarily due to higher accounts receivable of $21.8 million, additional cash used for inventory of $16.7 million, cash payments of $11.1 million associated with the fiscal 2011 restructuring plan and an increase in taxes paid of $11.2 million. Accounts receivable was higher due to the higher concentration of net sales later in the second quarter of fiscal 2012 as compared to the same period in fiscal 2011. Inventory has increased due to higher commodity costs and a planned build in anticipation of substantially higher demand in fiscal 2012.
On September 21, 2011, we entered into a new Master Accounts Receivable Purchase Agreement (the “MARP Agreement”), with an initial stated termination date of September 21, 2012, or such later date as may be mutually agreed by us and the banks party thereto. The MARP Agreement, which is uncommitted, provides for the discretionary sale by us, and the discretionary purchase by the banks, on a revolving basis, of accounts receivable generated by sales to two specified account debtors in an aggregate amount not to exceed $325 million, with debtor sublimits ranging from $120 million to $250 million. Under the terms of the MARP Agreement, the banks have the opportunity to purchase those accounts receivable offered by us at a discount (from the agreed base value thereof) effectively equal to the greater of 7-day or 3-month LIBOR plus 1.05%. The MARP Agreement replaced our previous Master Accounts Receivable Purchase Agreement, which provided for the discounted sale, on an uncommitted, revolving basis, of accounts receivable generated by a single specified account debtor, with aggregate limits not to exceed $80 million and an interest rate that approximated the 7-day LIBOR rate plus 1.25%.
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