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Why Is Scotts (SMG) Up 2.2% Since Last Earnings Report?

It has been about a month since the last earnings report for Scotts Miracle-Gro (SMG). Shares have added about 2.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Scotts due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Scotts Miracle-Gro’s Q2 Earnings Top, Sales Lag Estimates

Scotts Miracle-Gro reported net income from continuing operations of $249.8 million or $4.43 per share in second-quarter fiscal 2020, down from $396.9 million or $7.10 per share in the year-ago quarter.

Barring one-time items, adjusted earnings per share (EPS) was $4.50, up 23.6% year over year. The figure beat the Zacks Consensus Estimate of $4.07.

Net sales rose 16.2% year over year to $1,382.8 million. However, the figure missed the consensus mark of $1,389.2 million.

Company-wide gross margin rate (as adjusted) rose to 40% from 39.8% in the year-ago quarter.

Segment Details

In the fiscal second quarter, net sales in the U.S. Consumer division increased 11% year over year to $1,102.7 million. Profitability in the unit increased 17% year over year to $372.9 million.  

Net sales in the Hawthorne segment rose 60% year over year to $230 million in the reported quarter, driven by strong demand in almost all categories. The segment’s profit surged 148% year over year to $25.5 million.

Net sales in the Other segment fell 4% year over year to $50.1 million. The segment’s profitability rose 5% year over year to $4 million in the quarter.

Balance Sheet

In the fiscal second quarter, the company had cash and cash equivalents of $30.8 million, down 17.9% year over year. Long-term debt was $ 2,113.8 million, up 3.7% year over year.

Outlook

For fiscal 2020, the company has reaffirmed its sales growth outlook for the U.S. Consumer unit of 1-3%. It now expects sales in the Hawthorne segment to rise 30-35% in fiscal 2020. Based on these assumptions, it projects company-wide sales growth between 6% and 8% for the full year. The company expects to achieve its adjusted EPS guidance of $4.95-$5.15.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted -6.39% due to these changes.

VGM Scores

Currently, Scotts has a subpar Growth Score of D, however its Momentum Score is doing a lot better 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Scotts has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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