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Scotts Miracle-Gro (SMG) Q2 Earnings Beat Estimates, Sales Lag

The Scotts Miracle-Gro Company SMG reported a second-quarter fiscal 2023 (ending Apr 1, 2023) profit of $109.4 million or $1.94 per share, 60.4% lower than the profit of $276.5 million or $4.94 per share in the prior-year quarter.

Barring one-time items, the adjusted earnings were $3.78 per share compared with $5.03 a year ago, topping the Zacks Consensus Estimate of $3.20.    

The company’s net sales in the second quarter were $1,531.5 million, which lagged the Zacks Consensus Estimate of $1,617.6 million. Net sales decreased around 8.8% year over year. The top line declined primarily due to lower sales in the Hawthorne segment resulting from the weakness in the hydroponic industry.

Company-wide gross margin rate (as adjusted) was 34.7% compared with 35.4% in the year-ago quarter. The adjusted gross margin rate declined due to higher commodities, unfavorable conversion and fixed cost leverage, largely brought on by volume loss at Hawthorne and reduced production volumes in the U.S. consumer business.

The Scotts Miracle-Gro Company Price, Consensus and EPS Surprise

The Scotts Miracle-Gro Company price-consensus-eps-surprise-chart | The Scotts Miracle-Gro Company Quote

Segment Highlights

In the second quarter, net sales in the U.S. Consumer division were down 2% year over year to $1,357.4 million. The segment recorded a profit of $397.4 million, down 7% year over year.

Net sales in the Hawthorne segment tumbled 54% year over year to $92.7 million in the reported quarter. The segment reported a loss of $16.8 million. The figure was 609% lower than the year-ago profit of $3.3 million.

Net sales in the other segment fell 15% year over year to $81.4 million. The segment reported a profit of $14.6 million, up 39%.

Financials

At the end of the second quarter, SMG had cash and cash equivalents of $25 million, up around 46.2% year over year. Long-term debt decreased roughly 6.3% to $3,138 million.

Outlook

Moving ahead, the company anticipates a near 100 basis points decline in gross margin rate for fiscal 2023. It expects its adjusted operating income to decrease by a middle single-digit percentage in fiscal 2023. It also sees a low single-digit percentage decline in adjusted EBITDA for fiscal 2023. SMG expects a free cash flow of $1 billion over the next two years.

Price Performance

SMG’s shares are down 35.4% over a year compared with a 28.5% fall recorded by its industry.

Zacks Investment Research
Zacks Investment Research


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Zacks Rank & Key Picks

SMG currently carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the Basic Materials space include Steel Dynamics, Inc. STLD, Linde plc LIN and PPG Industries, Inc. PPG

Steel Dynamics currently carries a Zacks Rank #2 (Buy). Shares of STLD have gained 27.2% in the past year. It topped the Zacks Consensus Estimate in all the last four quarters. It delivered a trailing four-quarter earnings surprise of 10.7% on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Linde, currently carrying a Zacks Rank #2, has a projected earnings growth rate of 12.2% for the current year. The Zacks Consensus Estimate for LIN’s current-year earnings has been revised 4.8% upward in the past 60 days. It has a trailing four-quarter earnings surprise of 6.9%, on average. The stock has gained 22% over the past year.

PPG Industries currently carries a Zacks Rank #2 and has a projected earnings growth rate of 19.83% for the current year. Shares of PPG have gained 8.5% in the past year. It delivered a trailing four-quarter earnings surprise of 6.8% on average.

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