January 20, 2022

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Why Is Scotts (SMG) Down 8.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Scotts Miracle-Gro (SMG). Shares have lost about 8.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Scotts due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Scotts Miracle-Gro’s Q1 Earnings & Sales Beat Estimates

Scotts Miracle-Gro posted net loss from continuing operations of $71.3 million or $1.28 per share in first-quarter fiscal 2020 (ended Dec 28, 2019). The figure is narrower than a loss of $82.6 million or $1.49 per share in the year-ago quarter.

Barring one-time items, adjusted loss per share was $1.12, narrower than a loss of $1.39 in the year-ago quarter. The figure was also narrower than the Zacks Consensus Estimate of a loss of $1.24.

Net sales rose 23% year over year to $365.8 million. The figure surpassed the consensus mark of $347.7 million.

Company-wide gross margin rate (as reported) rose to 14.8% from 11.6% in the year-ago quarter.

Segment Details

In fiscal first quarter, net sales in the U.S. Consumer division rose 8% year over year to $147.4 million. The segment reported a loss of $41.5 million, which is narrower than a loss of $43.1 million in the year-ago quarter.

Net sales in the Hawthorne segment rose 41% year over year to $198.8 million in the reported quarter, which was primarily driven by strong demand in almost all categories of indoor growing equipment and supplies. The segment’s profit surged 216% year over year to $13.9 million.

Net sales in the Other segment fell 4% year over year to $19.6 million. The segment incurred a net loss of $3.5 million in the reported quarter, which is lower than a loss of $4 million in the year-ago quarter.

Balance Sheet

In fiscal first quarter, the company had cash and cash equivalents of $27.4 million, up 21.2% year over year. Long-term debt was $1,969.9 million, down 9.9% year over year.

Outlook

The company witnessed strong momentum in the U.S. Consumer unit in fiscal 2019, which also continued into fiscal 2020. Moreover, it continues to see outstanding performance across all product categories in the Hawthorne business in the United States.

Going forward, the company is upbeat on achieving its fiscal 2020 guidance. Scotts Miracle-Gro expects company-wide sales growth in the range of 4-6% for fiscal 2020. It continues to expect adjusted earnings per share in the band of $4.95-$5.15 for fiscal 2020.

Free cash flow is projected to be around $300 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, Scotts has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Scotts has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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