Will Hawthorne Drive Scotts Miracle-Gro's (SMG) Q3 Earnings?

The Scotts Miracle-Gro Company (NYSE:SMG) is set to release third-quarter fiscal 2019 results on Jul 31, before the opening bell.

The stock has rallied 33.6% in the past year against the industry’s 8.5% decline.

Factors at Play

In June, the company provided a revised outlook for fiscal 2019. It raised adjusted earnings per share (EPS) outlook on a full-year basis to the range of $4.20-$4.40 from the prior guidance of $4.10-$4.30.

Moreover, Scotts Miracle-Gro now expects company-wide sales to improve 13-14% year over year in the fiscal factoring in stronger-than-expected performance in the Hawthorne and U.S. Consumer segments.

Per management, the Hawthorne segment is benefiting from strong growth in long-standing markets like California along with emerging ones like Michigan and Florida. The company is currently expecting stronger sales growth in the U.S. Consumer business. This can be attributed to higher-than-planned sales of mulch products along with higher retailer engagement on a year-over-year basis.

Scotts Miracle-Gro is witnessing strong growth in the Hawthorne segment. Sales in the segment’s surged nearly 245% in the fiscal second quarter, mainly driven by the acquisition of Sunlight Supply and volume growth in most categories. The momentum is likely to continue in the to-be-reported quarter.

Moreover, consumer purchases of core lawn and garden products were up 4% entering June fiscal 2019, per the company. This was mainly driven by consistent demand for mulch, soils, weed control and lawn care products.

What do the Estimates Indicate?

The Zacks Consensus Estimate for fiscal third-quarter revenues is currently pegged at $1,066 million, which indicates a rise of 7.1% year over year.

The Zacks Consensus Estimate for fiscal third-quarter sales in the Hawthorne segment is currently pegged at $146 million, which suggests an increase of 97.3% from the year-ago quarter's reported figure.

What the Zacks Model Says

Our proven model does not show that Scotts Miracle-Gro is likely to beat in the estimates to-be-reported quarter. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Earnings ESP: Earnings ESP for Scotts Miracle-Gro is -3.10%. The Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at $2.63 and $2.71, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Scotts Miracle-Gro currently sports a Zacks Rank #1, which when combined with a negative ESP makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Note that we caution against stocks with a Zacks Rank #4 (Sell) or #5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Estimates

Here are some companies in the basic materials space you may want to consider as our model shows that they have the right combination of elements to post earnings beat this quarter:

Barrick Gold Corporation (NYSE:GOLD) has an Earnings ESP of +0.70% and carries a Zacks Rank #2.

Carpenter Technology Corporation (NYSE:CRS) has an Earnings ESP of +0.27% and carries a Zacks Rank #3.

Covia Holdings Corporation (NYSE:CVIA) has an Earnings ESP of +20.00% and a Zacks Rank #3.

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