Scotts Miracle-Gro (SMG) Misses On Q1 Earnings, Tops Sales

The Scotts Miracle-Gro Company (NYSE:SMG) posted net loss from continuing operations of $82.6 million or $1.49 per share in first-quarter fiscal 2019 (ended Dec 29, 2018), wider than a loss of $20 million or 35 cents in the year-ago quarter.

Barring one-time items, adjusted loss came in at $1.39 per share, which was wider than the Zacks Consensus Estimate of a loss of $1.24.

Net sales rose roughly 35% year over year to $298.1 million. The figure beat the Zacks Consensus Estimate of $294.7 million.

Company-wide gross margin rate declined to 11.6% from 15.3% in the year-ago quarter. Margins were affected by expected increase in freight costs along with mark-to-market adjustments on fuel hedges.

Per the company, results in the quarter were impacted on a year-over-year basis due to the timing of business, which is expected to be offset later in this fiscal.

Segment Review

In fiscal first quarter, net sales in the U.S. Consumer division rose roughly 9% year over year to $136.9 million, primarily on early shipments to some retail partners compared with the year-ago quarter. However, the segment incurred net loss of $43.1 million, wider than net loss of $37.9 million in the prior-year quarter.

Net sales in the Hawthorne segment jumped around 84% to $140.8 million in the quarter, which was mainly driven by the acquisition of Sunlight Supply. The segment’s profitability surged 159% year over year to $4.4 million.

Net sales in the Other segment, which comprises the company’s consumer lawn and garden business in regions other than the United States, rose 8% to $20.4 million. The segment posted a net loss of $4 million, unchanged from the year-ago quarter’s tally.

Balance Sheet

As of Dec 29, 2018, Scotts Miracle-Gro had cash and cash equivalents of $22.6 million, down around 58.5% year over year. Long-term debt was $ 2,186.2 million, up roughly 28.8%.

Outlook

Scotts Miracle-Gro reaffirmed outlook for earnings, sales and cash flow for fiscal 2019. The company stated that it is encouraged with the level of engagement from its largest retail partners as it heads for the 2019 lawn and garden season. Factors like the combination of strong retailer support, increased investment in brands along with innovative product line makes the company confident in its outlook for the season.

In November 2018, the company provided guidance for fiscal 2019. Adjusted earnings per share (EPS) were projected in the band of $4.10-$4.30. Sales are projected to grow 10-11%, considering expected growth of 1-2% in the U.S. Consumer segment and the balance from the Hawthorne segment.

Price Performance

Shares of Scotts Miracle-Gro have lost 20.8% in the past year compared with the industry’s 0.6% decline.

Zacks Rank & Other Key Picks

Scotts Miracle-Gro currently carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the basic materials space include Ingevity Corporation (NYSE:NGVT) , Quaker Chemical Corporation (NYSE:KWR) and Israel Chemicals Ltd (NYSE:ICL) . While Ingevity sports a Zacks Rank #1 (Strong Buy), both Quaker Chemical and Israel Chemicals carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ingevity has an expected earnings growth rate of 21.5% for 2019. The company’s shares have gained 28.4% in the past year.

Quaker Chemical has an expected earnings growth rate of 21.1% for 2019. Its shares have rallied 29.6% in a year’s time.

Israel Chemicals has an expected earnings growth rate of 5.4% for 2019. Its shares have rallied 39.4% in a year’s time.

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