Scotts (SMG) Down 2.5% Since Last Earnings Report: Can It Recover?

It has been about a month since Scotts Miracle-Gro (SMG) last reported earnings. Shares have lost about 2.5% in that time, 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 the most recent earnings report in order to better understand the important catalysts.

Top estimates for Scotts Miracle-Gro second quarter earnings and sales

Scotts Miracle-Gro reported second-quarter fiscal 2024 earnings (ended March 30, 2024) of $157.5 million, or $2.74 per share, up approximately 44% from $109.4 million, or $1.94 per share in the prior-year quarter.

Excluding one-time items, adjusted earnings per share were $3.69 per share, up from $3.78 a year ago, which was above the Zacks Consensus Estimate of $3.35.

The company’s fiscal second-quarter net sales were $1,525.4 million, surpassing the Zacks Consensus Estimate of $1,498.3 million. Net sales decreased approximately 0.4% year-over-year, primarily due to lower sales in the Hawthorne segment, in part due to weakness in the hydroponics industry.

The most important information in the segment

In the fiscal second quarter, U.S. Consumer net sales increased 2% year-over-year to $1,379.8 million, exceeding our estimate of $1,300 million. The segment posted a profit of $385.7 million, down 3% year-over-year.

Hawthorne segment net sales declined 28% year-over-year to $66.4 million in the reported quarter, missing our estimate of $94.5 million. The segment recorded a loss of $3.4 million. This figure was lower than the year before, when the loss was $16.8 million.

Segment 2 net sales declined 3% year-over-year to $79.2 million, missing our estimate of $89.6 million. The segment posted a profit of $6.4 million, down 56%.

Financial

At the end of the fiscal second quarter, the company had cash and cash equivalents of $65.1 million, an increase of approximately 160.4% year-over-year. Long-term debt decreased by approximately 12% to $2,760.5 million.

Perspectives

The company maintained its revised guidance for fiscal year 2024. Its key objective remains to generate $575 million in adjusted EBITDA and $560 million in free cash flow to restore a healthy balance sheet while significantly improving leverage and working capital.

How have estimates changed since then?

It turns out that new estimates have been trending downward over the past month.

As a result of these changes, the consensus estimate moved by -8.69%.

VGM results

Currently, Scotts has a solid Growth Score of B, although well behind its Momentum Score of F. However, the stock is rated a B on the value side, placing it in the top 40% of the investment strategy.

Overall, the stock has a Total VGM Score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Scotts carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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