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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Scotts Miracle Gro Company | NYSE:SMG | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
9.34 | 13.29% | 79.575 | 82.11 | 73.00 | 73.00 | 2,483,251 | 20:07:00 |
“Despite a sluggish start to the lawn and garden season, we successfully delivered significant POS growth, profitability and share gains across our consumer products portfolio through the fiscal third quarter,” said Jim Hagedorn, chairman, CEO and president. “Our performance reflects the power of our U.S. consumer business and our ability to adapt and respond to external factors.
“We more importantly continued our year-long trajectory of meeting or exceeding key financial metrics that drive the greatest value for our Company and shareholders. Looking ahead, we’re comfortable with our position in Q4 and expect a strong fall, enabling us to establish a foundation for growth heading into fiscal ’25.”
Financial Results
Third Quarter DetailsFor the quarter ended June 29, 2024, total Company sales were $1.2 billion, an increase of 7 percent compared to $1.1 billion a year ago. U.S. Consumer net sales increased 11 percent to $1 billion from $0.9 billion in the same period last year. U.S. Consumer segment favorability was mainly driven by shipment volume to support incremental seasonal promotional activity.
“Consumer engagement with our brands has remained high through fiscal ‘24, and we expect to drive continued participation through the fall with well-timed media and promotional plans in conjunction with our retail partners,” said Matt Garth, chief financial and administrative officer.
“We are tracking favorably to the financial goals we established for the full year, giving us confidence that we will achieve the EBITDA guidance we provided in June and set ourselves up for improved performance in 2025.”
Hawthorne segment net sales for the quarter decreased 28 percent, to $67.7 million, compared to $93.4 million last year. The decline was largely due to the Company’s previously announced discontinuation of its third-party distributed brands business. Third quarter net sales of Hawthorne’s proprietary Signature brands increased 6 percent versus the same quarter last year led by nutrients and lighting.
“Hawthorne has generated its first profitable quarter since the third quarter of fiscal 2022, a reflection that the changes we have made are strengthening the business despite continued industry hardships,” said Chris Hagedorn, division president. “We are on track to break-even or better adjusted EBITDA in fiscal 2024 and are positioning Hawthorne for future growth.”
GAAP and non-GAAP adjusted gross margin rates for the quarter were 29.5 percent and 29.2 percent, respectively. These compare to 18.4 percent and 21.3 percent, respectively, in the prior year. The significant improvement was primarily attributable to lower warehousing and transportation costs, lower material costs and inventory write-downs, higher commissions and favorable mix.
SG&A increased 15 percent to $147.9 million during the quarter compared to $128.5 million a year ago, mainly driven by higher accruals for incentive compensation, the majority of which are equity-based and excluded from adjusted EBITDA.
Other expense was $6.9 million in the quarter primarily due to the discount on sales of accounts receivable under the Company’s accounts receivable sale agreement. Costs associated with prior years’ accounts receivable financing facilities were included as a component of interest expense below operating income.
Interest expense during the quarter declined 18 percent compared to the same quarter last year, predominantly from lower debt levels partially offset by higher interest rates year over year. The Company’s average net debt to adjusted EBITDA leverage ratio at the end of the quarter was just under 5.5 times, well within the covenant maximum of 6.5 times.
The Company reported GAAP net income of $132.1 million, or $2.28 per diluted share, compared with $43.7 million, or $0.77 per diluted share, in the same quarter a year ago. Non-GAAP adjusted net income for the quarter, which excludes impairment, restructuring and other non-recurring items, more than doubled to $133.8 million, or $2.31 per diluted share, from $66.0 million, or $1.17 per diluted share, for the same period last year.
Year-to-date DetailsFor the first nine months of fiscal 2024, total Company net sales were $3.1 billion, down 1 percent from $3.2 billion a year earlier. U.S. Consumer segment sales increased 2 percent to $2.7 billion. Growth year-to-date was related to incremental promotions and listings in gardens along with strength in controls from weather-driven demand, partially offset by declines in grass seed. Sales for the Hawthorne segment decreased 33 percent to $214.2 million led by discontinued sales of certain growing environment and growing media distributed brands.
The company-wide gross margin rate was 28 percent on a GAAP basis and 30.2 percent on a non-GAAP adjusted basis compared with rates of 22.5 percent and 27.6 percent, respectively, a year ago. SG&A was roughly flat at $441.4 million.
Below operating income, results through the third quarter include $3.9 million adjusted equity income from the Bonnie JV that excludes a pre-tax impairment charge of $10.4 million recorded during the first quarter of this fiscal year. The year-to-date adjusted equity income is comparable to the results for the same period a year ago.
On a company-wide basis, GAAP net income was $209.1 million, or $3.64 per diluted share, compared with $88.3 million, or $1.57 per diluted share, for the first nine months a year ago. Excluding impairment, restructuring and other non-recurring items, non-GAAP adjusted earnings were $263.5 million, or $4.58 per diluted share, compared with $223.4 million, or $3.97 per diluted share, last year.
Fiscal 2024 Outlook
The Company reaffirms the non-GAAP fiscal 2024 guidance issued in June with the exception of Hawthorne net sales, which are now expected to end the fiscal year 35 to 40 percent lower than prior year with progress exiting lower margin distributed brands and projected decline in its professional horticulture lighting business. The segment still expects break even or better non-GAAP adjusted EBITDA for the full year in line with previous guidance.
Additionally, three-year targets were provided at the Company’s Investor Day on July 16, 2024. Related materials, including video highlights from the day, are available on the events page of the Company’s investor website.
Conference Call and Webcast Scheduled for 9 a.m. ET Today, July 31
The Company will discuss results during a video presentation via webcast today at 9 a.m. ET. To watch the Company presentation and listen to the question-and-answer session, please register in advance at this webcast link. For those planning to participate in the question-and-answer session that follows the video presentation, please register for the webcast to view the presentation in addition to registering in advance via this audio link to receive call-in details and a unique PIN. A replay of the conference call will also be available on the Company’s investor website where an archive of the press release and any accompanying information will remain available for at least a 12-month period.
Net Sales Details
Fiscal Third Quarter (April - June 2024) | ||||||||||
Net Sales Drivers(1) | Volume & Mix | Foreign Exchange | Price | Other(2) | Net Sales | |||||
U.S. Consumer | 10 | % | – | % | 1 | % | – | % | 11 | % |
Hawthorne | (30 | )% | – | % | 3 | % | 1 | % | (28 | )% |
Other | 9 | % | (1 | )% | (1 | )% | – | % | 7 | % |
Total SMG | 7 | % | - | % | 1 | % | (1 | )% | 7 | % |
Fiscal Year-to-Date (October 2023 - June 2024) | ||||||||||
Net Sales Drivers(1) | Volume & Mix | Foreign Exchange | Price | Other(2) | Net Sales | |||||
U.S. Consumer | 3 | % | – | % | (1 | )% | – | % | 2 | % |
Hawthorne | (31 | )% | – | % | (2 | )% | – | % | (33 | )% |
Other | 3 | % | – | % | (1 | )% | – | % | 2 | % |
Total SMG | - | % | – | % | (1 | )% | – | % | (1 | )% |
(1) Net Sales percentage changes are approximations based on quantitative formulas that are consistently applied(2) Other includes the impact of acquisitions and divestitures and rounding impacts necessary to reconcile to net sales
About ScottsMiracle-GroWith approximately $3.6 billion in sales, the Company is the world’s largest marketer of branded consumer products for lawn and garden care. The Company’s brands are among the most recognized in the industry. The Company’s Scotts®, Miracle-Gro®, and Ortho® brands are market-leading in their categories. The Company’s wholly-owned subsidiary, The Hawthorne Gardening Company, is a leading provider of nutrients, lighting, and other materials used in the indoor and hydroponic growing segment. For additional information, visit us at www.scottsmiraclegro.com.
Cautionary Note Regarding Forward-Looking Statements Statements contained in this press release, other than statements of historical fact, which address activities, events and developments that the Company expects or anticipates will or may occur in the future, 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 statements” within the meaning of the U.S. federal securities laws that are subject to risks and uncertainties. These forward-looking statements generally can be identified as statements that include phrases such as “guidance,” “outlook,” “projected,” “believe,” “target,” “predict,” “estimate,” “forecast,” “strategy,” “may,” “goal,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “will,” “should” or other similar words or phrases. Actual results could differ materially from the forward-looking information in this release due to a variety of factors, including, but not limited to:
Additional detailed information concerning a number of the important factors that could cause actual results to differ materially from the forward-looking information contained in this release is readily available in the Company’s publicly filed quarterly, annual and other reports. The Company disclaims any obligation to update developments of these risk factors or to announce publicly any revision to any of the forward-looking statements contained in this release, or to make corrections to reflect future events or developments.
For investor inquiries:Aimee DeLucaSr. Vice President, Investor Relationsaimee.deluca@scotts.com(937) 578-5621
For media inquiries:Tom MatthewsChief Communications Officertom.matthews@scotts.com(937) 644-7044
THE SCOTTS MIRACLE-GRO COMPANY | |||||||||||||||||||||||||
Condensed Consolidated Statements of Operations | |||||||||||||||||||||||||
(In millions, except per share data) | |||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
Footnotes | June 29,2024 | July 1,2023 | %Change | June 29,2024 | July 1,2023 | %Change | |||||||||||||||||||
Net sales | $ | 1,202.2 | $ | 1,118.7 | 7 | % | $ | 3,138.0 | $ | 3,176.8 | (1 | )% | |||||||||||||
Cost of sales | 850.6 | 880.1 | 2,191.4 | 2,300.7 | |||||||||||||||||||||
Cost of sales—impairment, restructuring and other | (2.5 | ) | 32.7 | 66.6 | 161.8 | ||||||||||||||||||||
Gross margin | 354.1 | 205.9 | 72 | % | 880.0 | 714.3 | 23 | % | |||||||||||||||||
% of sales | 29.5 | % | 18.4 | % | 28.0 | % | 22.5 | % | |||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||
Selling, general and administrative | 147.9 | 128.5 | 15 | % | 441.4 | 443.3 | — | % | |||||||||||||||||
Impairment, restructuring and other | (0.8 | ) | 1.7 | (5.9 | ) | 32.0 | |||||||||||||||||||
Other (income) expense, net | 6.9 | (1.6 | ) | 19.6 | (2.7 | ) | |||||||||||||||||||
Income from operations | 200.1 | 77.3 | 159 | % | 424.9 | 241.7 | 76 | % | |||||||||||||||||
% of sales | 16.6 | % | 6.9 | % | 13.5 | % | 7.6 | % | |||||||||||||||||
Equity in (income) loss of unconsolidated affiliates | (23.0 | ) | (22.2 | ) | 6.5 | (3.5 | ) | ||||||||||||||||||
Interest expense | 38.8 | 47.1 | 125.6 | 138.1 | |||||||||||||||||||||
Other non-operating (income) expense, net | 1.3 | 0.4 | 4.2 | (0.2 | ) | ||||||||||||||||||||
Income before income taxes | 183.0 | 52.0 | 252 | % | 288.6 | 107.3 | 169 | % | |||||||||||||||||
Income tax expense | 50.9 | 8.3 | 79.5 | 19.0 | |||||||||||||||||||||
Net income | $ | 132.1 | $ | 43.7 | 202 | % | $ | 209.1 | $ | 88.3 | 137 | % | |||||||||||||
Basic net income per common share | (1) | $ | 2.33 | $ | 0.78 | 199 | % | $ | 3.69 | $ | 1.58 | 134 | % | ||||||||||||
Diluted net income per common share | (2) | $ | 2.28 | $ | 0.77 | 196 | % | $ | 3.64 | $ | 1.57 | 132 | % | ||||||||||||
Common shares used in basic net income per share calculation | 56.8 | 56.2 | 1 | % | 56.7 | 55.9 | 1 | % | |||||||||||||||||
Common shares and potential common shares used in diluted net income per share calculation | 58.0 | 56.6 | 2 | % | 57.5 | 56.3 | 2 | % | |||||||||||||||||
Non-GAAP results: | |||||||||||||||||||||||||
Adjusted net income | (3) | $ | 133.8 | $ | 66.0 | 103 | % | $ | 263.5 | $ | 223.4 | 18 | % | ||||||||||||
Adjusted diluted net income per common share | (2) (3) | $ | 2.31 | $ | 1.17 | 97 | % | $ | 4.58 | $ | 3.97 | 15 | % | ||||||||||||
Adjusted EBITDA | (3) | $ | 236.8 | $ | 127.0 | 86 | % | $ | 607.4 | $ | 553.0 | 10 | % | ||||||||||||
Note: See accompanying footnotes. |
THE SCOTTS MIRACLE-GRO COMPANY | |||||||||||||||||||||||
Segment Results | |||||||||||||||||||||||
(In millions) | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
The Company divides its operations into three reportable segments: U.S. Consumer, Hawthorne and Other. U.S. Consumer consists of the Company’s consumer lawn and garden business in the United States. Hawthorne consists of the Company’s indoor and hydroponic gardening business. Other primarily consists of the Company’s consumer lawn and garden business in Canada. This identification of reportable segments is consistent with how the segments report to and are managed by the chief operating decision maker of the Company. In addition, Corporate consists of general and administrative expenses and certain other income and expense items not allocated to the business segments. | |||||||||||||||||||||||
The performance of each reportable segment is evaluated based on several factors, including income (loss) before income taxes, amortization, impairment, restructuring and other charges (“Segment Profit (Loss)”), which is a non-GAAP financial measure. Senior management uses Segment Profit (Loss) to evaluate segment performance because they believe this measure is indicative of performance trends and the overall earnings potential of each segment. | |||||||||||||||||||||||
The following tables present financial information for the Company’s reportable segments for the periods indicated: | |||||||||||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
June 29,2024 | July 1,2023 | %Change | June 29,2024 | July 1,2023 | %Change | ||||||||||||||||||
Net Sales: | |||||||||||||||||||||||
U.S. Consumer | $ | 1,017.5 | $ | 916.4 | 11 | % | $ | 2,704.0 | $ | 2,642.7 | 2 | % | |||||||||||
Hawthorne | 67.7 | 93.4 | (28 | )% | 214.2 | 317.6 | (33 | )% | |||||||||||||||
Other | 117.0 | 108.9 | 7 | % | 219.8 | 216.5 | 2 | % | |||||||||||||||
Consolidated | $ | 1,202.2 | $ | 1,118.7 | 7 | % | $ | 3,138.0 | $ | 3,176.8 | (1 | )% | |||||||||||
Segment Profit (Loss) (Non-GAAP): | |||||||||||||||||||||||
U.S. Consumer | $ | 210.3 | $ | 124.8 | 69 | % | $ | 580.5 | $ | 553.5 | 5 | % | |||||||||||
Hawthorne | 3.8 | (8.7 | ) | 144 | % | (9.2 | ) | (41.7 | ) | 78 | % | ||||||||||||
Other | 11.7 | 5.8 | 102 | % | 13.0 | 21.8 | (40 | )% | |||||||||||||||
Total Segment Profit (Non-GAAP) | 225.8 | 121.9 | 85 | % | 584.3 | 533.6 | 10 | % | |||||||||||||||
Corporate | (25.1 | ) | (3.4 | ) | (86.8 | ) | (77.4 | ) | |||||||||||||||
Intangible asset amortization | (3.9 | ) | (6.7 | ) | (11.8 | ) | (20.8 | ) | |||||||||||||||
Impairment, restructuring and other | 3.3 | (34.5 | ) | (60.8 | ) | (193.7 | ) | ||||||||||||||||
Equity in income (loss) of unconsolidated affiliates | 23.0 | 22.2 | (6.5 | ) | 3.5 | ||||||||||||||||||
Interest expense | (38.8 | ) | (47.1 | ) | (125.6 | ) | (138.1 | ) | |||||||||||||||
Other non-operating income (expense), net | (1.3 | ) | (0.4 | ) | (4.2 | ) | 0.2 | ||||||||||||||||
Income before income taxes (GAAP) | $ | 183.0 | $ | 52.0 | 252 | % | $ | 288.6 | $ | 107.3 | 169 | % |
THE SCOTTS MIRACLE-GRO COMPANY | |||||||||||
Condensed Consolidated Balance Sheets | |||||||||||
(In millions) | |||||||||||
(Unaudited) | |||||||||||
June 29,2024 | July 1,2023 | September 30,2023 | |||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 279.9 | $ | 27.4 | $ | 31.9 | |||||
Accounts receivable, net | 504.6 | 1,159.9 | 304.2 | ||||||||
Inventories | 606.8 | 884.9 | 880.3 | ||||||||
Prepaid and other current assets | 147.1 | 178.8 | 181.4 | ||||||||
Total current assets | 1,538.4 | 2,251.0 | 1,397.8 | ||||||||
Investment in unconsolidated affiliates | 106.8 | 196.5 | 91.9 | ||||||||
Property, plant and equipment, net | 599.0 | 590.3 | 610.3 | ||||||||
Goodwill | 243.9 | 254.5 | 243.9 | ||||||||
Intangible assets, net | 424.9 | 560.2 | 436.7 | ||||||||
Other assets | 576.3 | 601.9 | 633.1 | ||||||||
Total assets | $ | 3,489.3 | $ | 4,454.4 | $ | 3,413.7 | |||||
LIABILITIES AND EQUITY (DEFICIT) | |||||||||||
Current liabilities: | |||||||||||
Current portion of debt | $ | 52.9 | $ | 450.7 | $ | 52.3 | |||||
Accounts payable | 316.7 | 365.7 | 271.2 | ||||||||
Other current liabilities | 484.8 | 512.7 | 450.2 | ||||||||
Total current liabilities | 854.4 | 1,329.1 | 773.7 | ||||||||
Long-term debt | 2,436.4 | 2,628.8 | 2,557.4 | ||||||||
Other liabilities | 344.7 | 361.7 | 349.9 | ||||||||
Total liabilities | 3,635.5 | 4,319.6 | 3,681.0 | ||||||||
Equity (deficit) | (146.2 | ) | 134.8 | (267.3 | ) | ||||||
Total liabilities and equity (deficit) | $ | 3,489.3 | $ | 4,454.4 | $ | 3,413.7 |
THE SCOTTS MIRACLE-GRO COMPANY | ||||||||||||||||||||
Reconciliation of Non-GAAP Disclosure Items (3) | ||||||||||||||||||||
(In millions, except per share data) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Three Months Ended June 29, 2024 | Three Months Ended July 1, 2023 | |||||||||||||||||||
AsReported(GAAP) | Impairment,Restructuringand Other | Adjusted(Non-GAAP) | AsReported(GAAP) | Impairment,Restructuringand Other | Adjusted(Non-GAAP) | |||||||||||||||
Gross margin | $ | 354.1 | $ | 2.5 | $ | 351.6 | $ | 205.9 | $ | (32.7 | ) | $ | 238.6 | |||||||
Gross margin as a % of sales | 29.5 | % | 29.2 | % | 18.4 | % | 21.3 | % | ||||||||||||
Income from operations | 200.1 | 3.3 | 196.8 | 77.3 | (34.5 | ) | 111.8 | |||||||||||||
Income from operations as a % of sales | 16.6 | % | 16.4 | % | 6.9 | % | 10.0 | % | ||||||||||||
Income before income taxes | 183.0 | 3.3 | 179.6 | 52.0 | (34.5 | ) | 86.4 | |||||||||||||
Income tax expense | 50.9 | 5.1 | 45.8 | 8.3 | (12.1 | ) | 20.4 | |||||||||||||
Net income | 132.1 | (1.8 | ) | 133.8 | 43.7 | (22.4 | ) | 66.0 | ||||||||||||
Diluted net income per common share | 2.28 | (0.03 | ) | 2.31 | 0.77 | (0.40 | ) | 1.17 |
Calculation of Adjusted EBITDA (3): | Three Months EndedJune 29, 2024 | Three Months EndedJuly 1, 2023 | ||||||
Net income (GAAP) | $ | 132.1 | $ | 43.7 | ||||
Income tax expense | 50.9 | 8.3 | ||||||
Interest expense | 38.8 | 47.1 | ||||||
Depreciation | 16.4 | 15.8 | ||||||
Amortization | 3.9 | 6.7 | ||||||
Impairment, restructuring and other charges (recoveries) | (3.3 | ) | 34.5 | |||||
Equity in income of unconsolidated affiliates | (23.0 | ) | (22.2 | ) | ||||
Interest income | (0.1 | ) | (1.3 | ) | ||||
Share-based compensation | 21.1 | (5.6 | ) | |||||
Adjusted EBITDA (Non-GAAP) | $ | 236.8 | $ | 127.0 | ||||
Note: See accompanying footnotes. | ||||||||
The sum of the components may not equal due to rounding. |
THE SCOTTS MIRACLE-GRO COMPANY | ||||||||||||||||||||
Reconciliation of Non-GAAP Disclosure Items (3) | ||||||||||||||||||||
(In millions, except per share data) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Nine Months Ended June 29, 2024 | Nine Months Ended July 1, 2023 | |||||||||||||||||||
AsReported(GAAP) | Impairment,Restructuringand Other | Adjusted(Non-GAAP) | AsReported(GAAP) | Impairment,Restructuringand Other | Adjusted(Non-GAAP) | |||||||||||||||
Gross margin | $ | 880.0 | $ | (66.6 | ) | $ | 946.6 | $ | 714.3 | $ | (161.7 | ) | $ | 876.0 | ||||||
Gross margin as a % of sales | 28.0 | % | 30.2 | % | 22.5 | % | 27.6 | % | ||||||||||||
Income from operations | 424.9 | (60.8 | ) | 485.6 | 241.7 | (193.7 | ) | 435.4 | ||||||||||||
Income from operations as a % of sales | 13.5 | % | 15.5 | % | 7.6 | % | 13.7 | % | ||||||||||||
Equity in (income) loss of unconsolidated affiliates | 6.5 | 10.4 | (3.9 | ) | (3.5 | ) | — | (3.5 | ) | |||||||||||
Income before income taxes | 288.6 | (71.2 | ) | 359.8 | 107.3 | (193.7 | ) | 301.1 | ||||||||||||
Income tax expense | 79.5 | (16.8 | ) | 96.3 | 19.0 | (58.6 | ) | 77.6 | ||||||||||||
Net income | 209.1 | (54.4 | ) | 263.5 | 88.3 | (135.1 | ) | 223.4 | ||||||||||||
Diluted net income per common share | 3.64 | (0.95 | ) | 4.58 | 1.57 | (2.40 | ) | 3.97 |
Calculation of Adjusted EBITDA (3): | Nine Months EndedJune 29, 2024 | Nine Months EndedJuly 1, 2023 | ||||||
Net income (GAAP) | $ | 209.1 | $ | 88.3 | ||||
Income tax expense | 79.5 | 19.0 | ||||||
Interest expense | 125.6 | 138.1 | ||||||
Depreciation | 48.8 | 49.6 | ||||||
Amortization | 11.8 | 20.8 | ||||||
Impairment, restructuring and other charges | 60.8 | 193.7 | ||||||
Equity in (income) loss of unconsolidated affiliates | 6.5 | (3.5 | ) | |||||
Interest income | (0.4 | ) | (5.7 | ) | ||||
Share-based compensation | 65.7 | 52.7 | ||||||
Adjusted EBITDA (Non-GAAP) | $ | 607.4 | $ | 553.0 | ||||
Note: See accompanying footnotes. | ||||||||
The sum of the components may not equal due to rounding. |
THE SCOTTS MIRACLE-GRO COMPANYFootnotes to Preceding Financial Statements | |
(1) | Basic net income (loss) per common share amounts are calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. |
(2) | Diluted net income (loss) per common share amounts are calculated by dividing net income (loss) by the weighted average number of common shares, plus all potential dilutive securities (common stock options, performance shares, performance units, restricted stock and restricted stock units) outstanding during the period. |
(3) | Reconciliation of Non-GAAP 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 the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in the tables above. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for or superior to, financial measures reported in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies may calculate similarly titled non-GAAP financial measures differently than the Company, limiting the usefulness of those measures for comparative purposes.
In addition to GAAP measures, management uses these non-GAAP financial measures to evaluate the Company’s performance, engage in financial and operational planning, determine incentive compensation and monitor compliance with the financial covenants contained in the Company’s borrowing agreements because it believes that these non-GAAP financial measures provide additional perspective on and, in some circumstances are more closely correlated to, the performance of the Company’s underlying, ongoing business.
Management believes that these non-GAAP financial measures are useful to investors in their assessment of operating performance and the valuation of the Company. In addition, these non-GAAP financial measures address questions routinely received from analysts and investors and, in order to ensure that all investors have access to the same data, management has determined that it is appropriate to make this data available to all investors. Non-GAAP financial measures exclude the impact of certain items (as further described below) and provide supplemental information regarding operating performance. By disclosing these non-GAAP financial measures, management intends to provide investors with a supplemental comparison of operating results and trends for the periods presented. Management believes these non-GAAP financial measures are also useful to investors as such measures allow investors to evaluate performance using the same metrics that management uses to evaluate past performance and prospects for future performance. Management views free cash flow as an important measure because it is one factor used in determining the amount of cash available for dividends and discretionary investment.
Exclusions from Non-GAAP Financial Measures
Non-GAAP financial measures reflect adjustments based on the following items:
The tax effect for each of the items listed above is determined using the tax rate and other tax attributes applicable to the item and the jurisdiction(s) in which the item is recorded.
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:
Adjusted gross margin: Gross margin excluding impairment, restructuring and other charges / recoveries.Adjusted income (loss) from operations: Income (loss) from operations excluding impairment, restructuring and other charges / recoveries.Adjusted equity in (income) loss of unconsolidated affiliates: Equity in (income) loss of unconsolidated affiliates excluding impairment charges.Adjusted income (loss) before income taxes: Income (loss) before income taxes excluding impairment, restructuring and other charges / recoveries, costs related to refinancing and certain other non-operating income / expense items.Adjusted income tax expense (benefit): Income tax expense (benefit) excluding the tax effect of impairment, restructuring and other charges / recoveries, costs related to refinancing and certain other non-operating income / expense items.Adjusted net income (loss): Net income (loss) excluding impairment, restructuring and other charges / recoveries, costs related to refinancing and certain other non-operating income / expense items, each net of tax. Adjusted diluted net income (loss) per common share: Diluted net income (loss) per common share excluding impairment, restructuring and other charges / recoveries, costs related to refinancing and certain other non-operating income / expense items, each net of tax.Adjusted EBITDA: Net income (loss) before interest, taxes, depreciation and amortization as well as certain other items such as the impact of the cumulative effect of changes in accounting, costs associated with debt refinancing and other non-recurring or non-cash items affecting net income (loss). A form of Adjusted EBITDA is used in agreements governing the Company’s outstanding indebtedness for debt covenant compliance purposes. Adjusted EBITDA as used in those agreements includes additional adjustments to the Adjusted EBITDA presented in the reconciliations above which may decrease or increase Adjusted EBITDA for purposes of the Company’s financial covenants.
For the three and nine months ended June 29, 2024, the following items were adjusted, in accordance with the definitions above, to arrive at the non-GAAP financial measures:
For the three and nine months ended July 1, 2023, the following items were adjusted, in accordance with the definitions above, to arrive at the non-GAAP financial measures:
Forward Looking Non-GAAP Measures In this release, the Company presents certain forward-looking non-GAAP measures. The Company does not provide outlook on a GAAP basis because changes in the items that the Company excludes from GAAP to calculate the comparable non-GAAP measure, described above, can be dependent on future events that are less capable of being controlled or reliably predicted by management and are not part of the Company’s routine operating activities. Additionally, due to their unpredictability, management does not forecast many of the excluded items for internal use and therefore cannot create or rely on a GAAP outlook without unreasonable efforts. The occurrence, timing and amount of any of the items excluded from GAAP to calculate non-GAAP could significantly impact the Company’s GAAP results. As a result, the Company does not provide a reconciliation of forward-looking non-GAAP measures to GAAP measures, in reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K.
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