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Scotts Miracle-Gro (SMG) Provides Update on FY18 Outlook

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The Scotts Miracle-Gro Company (SMG - Free Report) recently said that consumer purchases of its lawn and garden products in May were at a record high of $565 million, leading to the near-full recovery of the decline reported by the company during the first seven months of the fiscal year.

For the U.S. Consumer division, consumer purchases were nearly flat from 2017 levels on a year-to-date basis through Jun 10 with lawn fertilizer, growing media, grass seed and mulch witnessing positive growth. Consumer purchases were also positive in the Home Center and Hardware channels, which were partly offset by continued declines in the mass retail channel.

The company now envisions reported sales growth for the full year to be in the range of 0-2% compared with prior view of 2-4% rise. Per the company, the updated guidance projects a decline in U.S. Consumer sales of 1-3% against the prior forecast of 0-2% growth.

Sales at the Hawthorne division are projected to grow 25-30% for fiscal 2018 on the back of the recently completed acquisition of Sunlight Supply. Notably, the unit’s sales are expected to decline modestly compared to fiscal 2017, excluding the buyout.

Despite falling short of original expectations this year, the company is impressed with the stability of its U.S. Consumer business along with the continued long-term prospects and cost savings opportunities associated with the Hawthorne unit.

Scotts Miracle-Gro projects adjusted earnings in the range of $3.70-$3.90 per share, which includes dilution of roughly 30-40 cents associated with the Sunlight transaction. Moreover, it expects a decline in the gross margin rate of 250-300 basis points (bps) (up from earlier guidance of a decline of 50-100 bps).

The company said that the addition of Sunlight is likely to negatively impact the rate by roughly 100 bps, partly due to product mix and purchase accounting adjustments. The remaining of the increased rate pressure is due to company-wide higher-than-expected distribution costs and lower volume.

Moreover, the combination of the slow start to the season and improved inventory planning by its retail partners is causing the company to lower sales outlook for the U.S. Consumer segment.

Recently, the company also took actions that resulted in annualized savings of $15 million with regards to its commitment to achieve $35 million in synergies from the Sunlight buyout. Also, it anticipates further actions by the end of the current fiscal year and expects total savings to be mostly realized by the end of calendar year 2019.

Zacks Rank & Stocks to Consider

Scotts Miracle-Gro currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks worth considering in the basic materials space are The Chemours Company (CC - Free Report) , FMC Corporation (FMC - Free Report) and Westlake Chemical Corporation (WLK - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chemours has an expected long-term earnings growth rate of 15.5%. Its shares have gained 28.2% in a year.

FMC Corp has an expected long-term earnings growth rate of 14.3%. Its shares have moved up 16.8% in a year.

Westlake Chemical has an expected long-term earnings growth rate of 12.2%. Its shares have rallied 71.8% in a year.

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