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What's in Store for Scotts Miracle-Gro (SMG) in Q1 Earnings?

Zacks Equity Research

The Scotts Miracle-Gro Company SMG is slated to release first-quarter fiscal 2019 results on Jan 30, before the market opens.

Scotts Miracle-Gro recorded net loss from continuing operations of $130.6 million or $2.36 per share in fourth-quarter fiscal 2018 (ended Sep 30, 2018), wider than a loss of $42.3 million or 72 cents in the year-ago quarter. Barring one-time items, adjusted loss came in at 75 cents per share in the quarter, which was wider than the Zacks Consensus Estimate of a loss of 67 cents.

Sales rose roughly 15% year over year to $433.9 million. However, the figure lagged the Zacks Consensus Estimate of $442.6 million.

Scotts Miracle-Gro surpassed the Zacks Consensus Estimate in one of the trailing four quarters and missed in the other occasions, the average negative surprise being 10.1%.

Scotts Miracle-Gro outperformed the industry in the past year. The company’s shares have lost around 35.8% compared with a 2.5% decline recorded by the industry.


 

Let’s see how things are shaping up for the upcoming announcement.

Factors at Play

Scotts Miracle-Gro, in its fourth-quarter call, stated that for fiscal 2019, the company expects adjusted earnings per share (EPS) of $4.10-$4.30. It expects sales to grow 10-11%, assuming U.S. Consumer segment will improve 1-2% and the balance from the Hawthorne segment.

The Zacks Consensus Estimate for the fiscal first-quarter revenues stands at $295 million, reflecting an increase of 33% year over year.

Scotts Miracle-Gro should gain from the synergies of the Sunlight Supply acquisition. The buyout provides unique competitive advantages for the company’s Hawthorne segment. Moreover, the integration of Sunlight Supply is on track and the company expects at least $35 million in synergies from the transaction by the end of fiscal 2019. As a result of the Sunlight acquisition, the company expects year-over-year improvement in adjusted EPS, and growth in total sales and gross margin.
 
The Zacks Consensus Estimate for the fiscal first-quarter sales for the Hawthorne segment is currently pegged at $147 million, reflecting an increase of 91% from the year-ago quarter. Within the segment, the company expects acquisitions to contribute 8% on a company-wide basis in fiscal 2019. However, softness in the U.S. hydroponics business is likely to continue.

Moreover, the Zacks Consensus Estimate for the fiscal first-quarter revenues in the U.S. Consumer division is pegged at $126 million, reflecting a drop of 50% from the prior quarter, while the figure indicates flat growth year over year. The company expects pricing to add 3% to the U.S. Consumer unit on a full-year basis in fiscal 2019. However, the company also anticipates some unit decline from retailer merchandising decisions and continued inventory productivity initiatives actions.

Scotts Miracle-Gro is focused on bringing new products to the market in the consumer segment. The company is likely to gain from its new line of organic plant food and growing media products — Miracle-Gro Performance Organics. The company believes that Performance Organics is a major new product and has the potential to transform the gardening industry category. It is also expected to add new consumers into the space.

However, Scotts Miracle-Gro is witnessing a rise in expenses, which is affecting its margins. The company’s gross margin declined year over year in fiscal 2018, due to unfavorable fixed cost absorption, higher overall distribution, commodity expenses and the impact of acquisitions along with higher trade program expenses. Distribution and commodity expenses are likely to remain headwinds for the company in fiscal 2019.

The Scotts Miracle-Gro Company Price and EPS Surprise

The Scotts Miracle-Gro Company Price and EPS Surprise | The Scotts Miracle-Gro Company Quote

Earnings Whispers

Our proven model does not conclusively show a beat for Scotts Miracle-Gro in the fiscal first quarter. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below:

Earnings ESP: Earnings ESP for Scotts Miracle-Gro is 0.00%. The Zacks Consensus Estimate for the fiscal first quarter is pegged at a loss of $1.24. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Scotts Miracle-Gro currently carries a Zacks Rank #2, which when combined with a 0.00% ESP, makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the basic materials space you may want to consider, as our model shows these have the right combination of elements to post an earnings beat this quarter:

New Gold Inc. NGD has an Earnings ESP of +166.67% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teck Resources Limited TECK has an Earnings ESP of +6.03% and carries a Zacks Rank #3.

Ryerson Holding Corporation RYI has an Earnings ESP of +57.05% and a Zacks Rank #3.

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