Scotts Miracle-Gro (SMG) Q4 Earnings And Sales Lag Estimates

The Scotts Miracle-Gro Company (NYSE:SMG) recorded net loss from continuing operations of $130.6 million or $2.36 per share in fourth-quarter fiscal 2018 (ended Sep 30, 2018), wider than a loss of $42.3 million or 72 cents in the year-ago quarter.

Barring one-time items, adjusted loss came in at 75 cents per share in the quarter, which was wider than the Zacks Consensus Estimate of a loss of 67 cents.

Sales rose roughly 15% year over year to $433.9 million. However, the figure trailed the Zacks Consensus Estimate of $442.6 million.

Company-wide adjusted gross margin rate declined to 19.2% from 23.4% a year ago. The company recorded a non-cash impairment of $94.6 million associated with goodwill in the Hawthorne segment. Moreover, it recorded a charge of $20 million in discontinued operations for a litigation matter related to wild bird food business, which was previously divested.

FY18 Results

Adjusted net income for the fiscal 2018 fell roughly 11% year over year to $211.6 million or $3.71 per share, while net sales rose roughly 1% to $2,663.4 million.

Segment Review

In the fiscal fourth quarter, sales in the U.S. Consumer division fell roughly 2% year over year to $252.6 million, mainly due to focused inventory productivity efforts with specific major retail accounts. The segment swung to profit of $5.3 million from a loss of $0.3 million a year ago.

Sales in the Hawthorne segment jumped around 65% to $152.2 million in the quarter, which was mainly driven by acquisitions. The segment’s profitability declined 94% year over year to $0.5 million.

Sales in the company’s Other segment rose 9% to $29.1 million. The segment swung to a profit of $0.7 million in the quarter against a loss of $0.9 million a year ago.

Balance Sheet

As of Sep 30, Scotts Miracle-Gro had cash and cash equivalents of $33.9 million, down around 71.9% year over year. Long-term debt was $1,883.8 million, up roughly 49.7%.

Outlook

The company provided guidance for fiscal 2019. Adjusted earnings per share (EPS) are forecast in the band of $4.10-$4.30.

It expects sales to grow 10-11%, assuming U.S. Consumer segment will grow 1-2% and the balance from the Hawthorne segment. Within the Hawthorne segment, acquisitions are projected to contribute 8% on a company-wide basis.

Additionally, the company expects pricing to add 3% to the U.S. Consumer unit on a full-year basis. However, it also anticipates some unit decline from retailer merchandising decisions and continued inventory productivity initiatives actions.

Price Performance

Shares of Scotts Miracle-Gro have moved up 3.8% in the past three months compared with the industry’s 4.3% rise.

Zacks Rank & Stocks to Consider

Scotts Miracle-Gro currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the basic materials space are Methanex Corporation (NASDAQ:MEOH) , CF Industries Holdings, Inc. (NYSE:CF) and Domtar Corporation (TO:UFS) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Methanex has expected long-term earnings growth rate of 15%. Its shares have rallied 28.1% in the past year.

CF Industries has expected long-term earnings growth rate of 6%. Its shares have gained 44% in a year.

Domtar has expected long-term earnings growth rate of 5%. Its shares have moved up 8% in the past year.

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