Scotts (SMG) Up 0.5% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Scotts Miracle-Gro (SMG). Shares have added about 0.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Scotts due for a pullback? 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 Q3 Earnings & Sales Lag Estimates
Scotts Miracle-Gro reported third-quarter fiscal 2023 (ended Jul 1, 2023) profit of $43.7 million or 77 cents per share against a loss of $443.9 million or $8.01 per share in the year-ago quarter.
Barring one-time items, the adjusted earnings were $1.17 per share, down from $1.98 a year ago. The figure missed the Zacks Consensus Estimate of $1.41.
Net sales fell around 5.7% year over year to $1,118.7 million and missed the consensus mark of $1,160.6 million. The decline in sales was due to lower sales in the Hawthorne segment.
Segment Details
In the fiscal third quarter, net sales in the U.S. Consumer division were up 1% year over year to $916.4 million. It was lower than our estimate of $928.2 million. The segment delivered a profit of $124.8 million, down 31% year over year.
Net sales in the Hawthorne segment tumbled 40% year over year to $93.4 million in the reported quarter. The figure was lower than our estimate of $120 million. The segment reported a loss of $8.7 million, down 312% year over year.
Net sales in the other segment fell 14% year over year to $108.9 million. The segment reported a profit of $5.8 million, down 47%.
Balance Sheet
At the end of the quarter, the company had cash and cash equivalents of $27.4 million, down around 1.4% year over year. Long-term debt was $2,628.8 million, down around 16.7%
FY2023 Outlook
The company anticipates a roughly 10–11% fall in overall net sales, primarily due to a 2–4% decline in net sales in the U.S. Consumer segment and a 30–35% decrease in net sales in the Hawthorne sector. In addition, the operating income for the year is anticipated to be between 7% and 7.5% of revenues. Taking these changes into account, full-year adjusted EBITDA is anticipated to be around 25% lower than the prior year, and the consequent tax rate will increase to 28% to 29% for the year. Expectations for strong free cash flow generation and interest expense remain unchanged.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -65.08% due to these changes.
VGM Scores
At this time, Scotts has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Scotts has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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The Scotts Miracle-Gro Company (SMG) : Free Stock Analysis Report
