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Scotts (SMG) Down 14.8% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Scotts Miracle-Gro (SMG). Shares have lost about 14.8% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Scotts Miracle-Gro Beats Q4 Earnings & Sales Estimates

Scotts Miracle-Gro reported loss from continuing operations of $48.7 million or 87 cents per share in fourth-quarter fiscal 2021 (ended Sep 30, 2021) compared with a profit of $4.2 million or 7 cents per share in the year-ago quarter.

Barring one-time items, adjusted loss was 82 cents per share against an earnings of 6 cents a year ago. The figure was narrower than the Zacks Consensus Estimate of a loss of 85 cents.

Net sales went down 17.1% year over year to $737.8 million and beat the consensus mark of $673.8 million.

Company-wide gross margin rate (as adjusted) was 17.4% compared with 24.3% in the year-ago quarter.

Segment Details

In the fourth quarter, net sales in the U.S. Consumer division declined 28% year over year to $369.4 million. The segment reported a loss of $18.9 million against a profit of $46 million in the prior-year quarter. 

Net sales in the Hawthorne segment declined 2% year over year to $329.1 million in the reported quarter. The segment’s profits declined 20% year over year to $30.1 million.

Net sales in the Other segment fell 5% year over year to $39.3 million. The segment reported a loss of $2.4 million, narrower than a loss of $3.2 million a year ago in the year-ago quarter.

FY21 Results

Earnings (as reported) for fiscal 2021 were $9.03 per share compared with $6.78 per share a year ago. Net sales increased around 19% to roughly $4.93 billion.

Balance Sheet

At the end of the fourth quarter, the company had cash and cash equivalents of $244.1 million, up nearly 15-fold year over year. Long-term debt was $2,236.7 million, up 53.7% year over year.

Outlook

The company expects sales in the Hawthorne segment for fiscal 2022 to rise 8-12%. U.S. Consumer sales growth guidance is expected to be 0 to -4%. It expects company-wide sales growth of 0-3%.

The gross margin rate is projected to decline 100-150 basis points (bps) year over year. The company also expects adjusted earnings per share in the range of $8.50-$8.90 for the full year.

The company noted that the current oversupply of cannabis is expected to put negative pressure on its growth rate through the rest of the calendar year and into the second quarter at Hawthorne, at which point it expects a more normal growth rate.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -20% due to these changes.

VGM Scores

At this time, Scotts has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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. Notably, Scotts has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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