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Scotts (SMG) Down 9.1% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Scotts Miracle-Gro (SMG - Free Report) . Shares have lost about 9.1% 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 drivers.

Scotts Miracle-Gro's Q4 Earnings and Sales Lag Estimates

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 trailed the Zacks Consensus Estimate of $442.6 million.

Company-wide adjusted gross margin rate declined to 19.2% from 23.4% a year ago. The company recorded a non-cash impairment of $94.6 million associated with goodwill in the Hawthorne segment. Moreover, it recorded a charge of $20 million in discontinued operations for a litigation matter related to wild bird food business, which was previously divested.

FY18 Results

Adjusted net income for the fiscal 2018 fell roughly 11% year over year to $211.6 million or $3.71 per share, while net sales rose roughly 1% to $2,663.4 million.

Segment Review

In the fiscal fourth quarter, sales in the U.S. Consumer division fell roughly 2% year over year to $252.6 million, mainly due to focused inventory productivity efforts with specific major retail accounts. The segment swung to profit of $5.3 million from a loss of $0.3 million a year ago.

Sales in the Hawthorne segment jumped around 65% to $152.2 million in the quarter, which was mainly driven by acquisitions. The segment’s profitability declined 94% year over year to $0.5 million.

Sales in the company’s Other segment rose 9% to $29.1 million. The segment swung to a profit of $0.7 million in the quarter against a loss of $0.9 million a year ago.

Balance Sheet

As of Sep 30, Scotts Miracle-Gro had cash and cash equivalents of $33.9 million, down around 71.9% year over year. Long-term debt was $1,883.8 million, up roughly 49.7%.

Outlook

The company provided guidance for fiscal 2019. Adjusted earnings per share (EPS) are forecast in the band of $4.10-$4.30.

It expects sales to grow 10-11%, assuming U.S. Consumer segment will grow 1-2% and the balance from the Hawthorne segment. Within the Hawthorne segment, acquisitions are projected to contribute 8% on a company-wide basis.

Additionally, the company expects pricing to add 3% to the U.S. Consumer unit on a full-year basis. However, it also anticipates some unit decline from retailer merchandising decisions and continued inventory productivity initiatives actions.
 

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

Currently, Scotts has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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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