Scotts (SMG) Down 0.5% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Scotts Miracle-Gro (SMG). Shares have lost about 0.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Scotts Miracle-Gro's Q4 Earnings Lag Estimates, Sales Top

Scotts Miracle-Gro reported net income from continuing operations of $4.2 million or 7 cents per share in fourth-quarter fiscal 2020 (ended Sep 30, 2020) against a net loss of $55.5 million or 99 cents per share in the year-ago quarter.

Barring one-time items, adjusted earnings per share were 6 cents, up 106.6% year over year. However, the figure missed the Zacks Consensus Estimate of 7 cents.

Net sales surged 78.9% year over year to $890.3 million and beat the consensus mark of $884.6 million.

Company-wide gross margin rate (as adjusted) was 24.3% compared with 18.5% in the year-ago quarter.

FY20 Results

Adjusted earnings for fiscal 2020 surged 62% year over year to $7.24 per share, while net sales increased 31% to $4,131.6 million.

Segment Details

In the fiscal fourth quarter, net sales in the U.S. Consumer division increased 90% year over year to $497.2 million. The segment reported profits of $44.1 million against a net loss of $20.7 million in the prior-year quarter.  

Net sales in the Hawthorne segment rose 68% year over year to $351.9 million in the reported quarter. The segment’s profits surged 81% year over year to $39.6 million.

Per the company, growth in the U.S. Consumer and Hawthorne segments was witnessed across all product categories, geographies and retail channels.

Net sales in the Other segment increased 58% year over year to $41.2 million. The segment reported a net loss of $3.2 million in the quarter compared with $2.6 million in the prior-year quarter.

Balance Sheet

At the end of fiscal 2020, the company had cash and cash equivalents of $16.6 million, down 11.7% year over year. Long-term debt was $1,455.1 million, down 4.5% year over year.

Outlook

In the U.S. Consumer unit, the company projects sales to be flat-to-down 5% for fiscal 2021. It expects sales in the Hawthorne segment to rise 15-20% in fiscal 2021.

Based on these assumptions, the company projects adjusted earnings per share between $8 and $8.40. Free cash flow is expected to be around $325 million.

The company expects results for the U.S Consumer and Hawthorne segments in the first half of fiscal 2021 to trend above its full-year view, which is expected to be partly offset by a challenging second half of the year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 29.23% due to these changes.

VGM Scores

At this time, Scotts has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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