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Why Is Scotts (SMG) Down 1.4% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Scotts Miracle-Gro (SMG). Shares have lost about 1.4% 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’s Q4 Earnings Miss, Sales Top Estimates

Scotts Miracle-Gro posted net loss from continuing operations of $55.5 million or 99 cents per share in fourth-quarter fiscal 2019 (ended Sep 30, 2019), narrower than loss of $130.6 million or $2.36 per share in the year-ago quarter.

Barring one-time items, adjusted loss per share was 91 cents, wider than loss of 75 cents a year ago. The figure was also wider than the Zacks Consensus Estimate of loss of 87 cents per share.

Net sales rose around 15% year over year to $497.7 million. The figure surpassed the consensus mark of $451 million.

Company-wide gross margin rate rose to 18% from 17% in the year-ago quarter.

Fiscal 2019 Results

Adjusted net income for fiscal 2019 rose 19% year over year to $251.8 million or $4.47 per share, while net sales rose 18% to $3,156 million.

Segment Details

In the fiscal fourth quarter, net sales in the U.S. Consumer division rose 4% year over year to $261.6 million. The segment generated loss of $20.7 million against net profit of $5.3 million in the year-ago quarter.

Net sales in the Hawthorne segment rose nearly 38% to $210 million in the quarter, which was primarily driven by strong demand across the United States. The segment’s profit grew to $21.9 million from $0.5 million a year ago.

Net sales in the Other segment fell 10% to $26.1 million. The segment generated loss of $2.6 million against net profit of $0.7 million in the year-ago quarter.

Balance Sheet

At the end of fiscal 2019, the company had cash and cash equivalents of $18.8 million, down 44.5% year over year. Long-term debt was $1,523.5 million, down 19.2%.

Outlook

Scotts Miracle-Gro expects company-wide sales growth of 4-6% for fiscal 2020. Moreover, the company anticipates Hawthorne’s sales to grow 12-15% and U.S. Consumer sales to rise 1-3%.

It expects adjusted earnings per share of $4.95-$5.15 for fiscal 2020.

Free cash flow is expected to be $300 million.
 

How Have Estimates Been Moving Since Then?

Estimates revision followed a flat path over the past two months.

VGM Scores

Currently, Scotts has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. 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

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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