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Scotts Miracle-Gro (SMG) Q3 Earnings Top, Sales Lag Estimates

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The Scotts Miracle-Gro Company (SMG - Free Report) recorded net income from continuing operations of $125.5 million or $2.23 per share in third-quarter fiscal 2018 (ended Jun 30, 2018), down from $144.6 million or $2.41 a year ago.

Barring one-time items, adjusted earnings came in at $2.67 per share in the quarter, which surpassed the Zacks Consensus Estimate of $2.55.

Sales rose roughly 2% year over year to $994.6 million. However, the figure trailed the Zacks Consensus Estimate of $996.4 million.  

Company-wide adjusted gross margin rate declined to 36.1% from 39.4% a year ago, mainly due to commodity inflation, higher-than-expected distribution costs, product mix related to acquisitions and increased trade program expenses.

Segment Review

In the fiscal third quarter, sales from the U.S. Consumer division rose roughly 1% year over year to $810.9 million, while profitability decreased 1% to $243.1 million.

Sales from the Hawthorne segment were up around 2% to $74.2 million in the quarter. The segment incurred net loss of $3.6 million against net profit of $10.3 million a year ago. Notably, Hawthorne sales declined 37% in the quarter, excluding the contributions from acquisitions.

Sales from the company’s Other segment rose 10% to $109.5 million while profitability increased 2% to $13.1 million.
 
Balance Sheet

Scotts Miracle-Gro ended the quarter with cash and cash equivalents of $29.6 million, down around 66.3% year over year. Long-term debt was $1,975.4 million, up roughly 40%.

Outlook

The company reiterated its prior guidance for fiscal 2018. It continues to expect sales growth in the range of 0-2% year over year, which includes impact of acquisitions. Adjusted earnings per share are anticipated to be in the $3.70-$3.90 band.

Price Performance

Shares of Scotts Miracle-Gro have declined 3.3% over the past three months against the industry’s 14% rise.



Zacks Rank & Stocks to Consider

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

A few better-ranked stocks in the basic materials space are KMG Chemicals, Inc , CF Industries Holdings, Inc. (CF - Free Report) and Celanese Corporation (CE - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

KMG Chemicals has an expected long-term earnings growth rate of 28.5%. Its shares have returned 40.2% in a year.

CF Industries has an expected long-term earnings growth rate of 6%. Its shares have rallied 53.7% in a year.

Celanese has an expected long-term earnings growth rate of 10%. Its shares have gained 17.3% in a year.

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