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Scotts (SMG) Down 0.7% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Scotts Miracle-Gro (SMG - Free Report) . Shares have lost about 0.7% in that time frame, outperforming 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 get a better handle on the important drivers.

Scotts Miracle-Gro Tops Q2 Earnings & Sales Estimates

Scotts Miracle-Gro posted net earnings from continuing operations of $396.9 million or $7.10 per share in second-quarter fiscal 2019 (ended Mar 30, 2019), up from $152.7 million or $2.66 in the year-ago quarter.

Barring one-time items, adjusted earnings came in at $3.64 per share, up 26.4% year over year. The figure beat the Zacks Consensus Estimate of $3.42.

Net sales rose roughly 17.4% year over year to $1,189.9 million. The figure surpassed the consensus estimate of $1,160.7 million.

Company-wide gross margin rate declined to 39.7% from 40.4% in the year-ago quarter. Margins were affected by the Sunlight buyout and unfavorable product mix, partly offset by higher pricing.

Segment Details

In the fiscal second quarter, net sales in the U.S. Consumer division rose roughly 8% year over year to $993.5 million, primarily due to double-digit growth in consumer purchases. The segment’s profit went up 12% to $320 million.

Net sales in the Hawthorne segment surged around 245% to $144.1 million in the quarter, which was mainly driven by the acquisition of Sunlight Supply and volume growth in most categories. The segment reported profit of $10.3 million against net loss of $4.8 million a year ago.

Net sales in the Other segment, which comprises the company’s consumer lawn and garden business in regions other than the United States, rose 2% to $52.3 million. The segment’s profit soared 138% to $3.8 million.

Balance Sheet

At the end of the fiscal second quarter, Scotts Miracle-Gro had cash and cash equivalents of $37.5 million, up around 13.6% year over year. Long-term debt was $2,039.1 million, up roughly 5.2%.

Outlook

Scotts Miracle-Gro reaffirmed its guidance for fiscal 2019. The company also acknowledged that given a strong start in both U.S. Consumer and Hawthorne divisions, its actual sales growth may exceed original forecast. Adjusted earnings per share are projected in the band of $4.10-$4.30.  
 

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, Scotts has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Scotts has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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