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ScottsMiracle-Gro (SMG) Provides Revised View for Fiscal 2019

Zacks Equity Research

The Scotts Miracle-Gro Company SMG has provided a revised outlook for fiscal 2019. The company now expects company-wide sales to improve 13-14% year over year in the fiscal factoring in stronger-than-expected performance in the Hawthorne and U.S. Consumer segments.

The company also raised its adjusted earnings per share (EPS) outlook on a full-year basis. Adjusted EPS is projected in the range of $4.20-$4.40 compared with prior guidance of $4.10 to $4.30.

On a company-wide basis, sales in the U.S. consumer unit are forecast to improve 3-4% from 2018 levels compared with the previous view of a rise of 1-2%. Sales in the Hawthorne segment are expected to grow 75-80%. On a company-wide basis, the segment is expected to contribute roughly 10 points growth, up from the initial expectation of 8-9%.

Per management, the Hawthorne segment is benefiting from strong growth in long-standing markets like California along with emerging markets like Michigan and Florida. The company is now expecting stronger sales growth in the U.S. Consumer business. This can be attributed to higher-than-planned sales of mulch products along with higher retailer engagement on year-over-year basis.

Notably, consumer purchases of core lawn and garden products were up 4% entering fiscal June 2019. This was mainly driven by consistent demand for mulch, soils, weed control and lawn care products.

The gross margin rate is projected to be flat-to-down 50 basis points for the fiscal. This is due to higher-than-expected lower margin mulch sales in the U.S. Consumer along with higher promotional spending in Hawthorne, per the company. Promotional activity is enabling the Hawthorne unit to improve overall position in the marketplace and positioning it as the leading provider of hydroponic growing equipment.

On a full-year basis, SG&A is now forecast to be 8-9% higher compared with 5-6% rise expected earlier. Higher marketing spending is the primary driver in the company’s revision, which was not anticipated at the start of the year. The company projects free cash flow between $140 million and $160 million.

Shares of Scotts Miracle-Gro have gained 7.7% in the past year, against the industry’s 12.5% decline.



Zacks Rank & Other Key Picks

Scotts Miracle-Gro currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the basic materials space are Materion Corporation MTRN, Flexible Solutions International Inc FSI and AngloGold Ashanti Limited AU, all currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Materion has an expected earnings growth rate of 27.3% for 2019. The company’s shares have gained 12.5% in the past year.

Flexible Solutions has a projected earnings growth rate of 342.9% for the current year. The company’s shares have surged 84.9% in a year’s time.

AngloGold has an estimated earnings growth rate of 90.6% for the current year. Its shares have rallied 70.1% in the past year.

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