It has been about a month since the last earnings report for Scotts Miracle-Gro (SMG). Shares have added about 5.9% 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 the most recent earnings report in order to get a better handle on the important drivers.
Scotts Miracle-Gro's Q3 Earnings & Sales Top Estimates
Scotts Miracle-Gro reported net income from continuing operations of $204.3 million or $3.57 per share in third-quarter fiscal 2020 (ended Jun 27, 2020), up from $178 million or $3.15 per share in the year-ago quarter.
Barring one-time items, adjusted earnings per share (EPS) were $3.80, up 22.2% year over year. The figure beat the Zacks Consensus Estimate of $3.35.
Net sales rose 27.6% year over year to $1,492.7 million and beat the consensus mark of $1,323.6 million.
Company-wide gross margin rate (as adjusted) was 36.1% compared with 36.2% in the year-ago quarter.
In the fiscal third quarter, net sales in the U.S. Consumer division increased 21% year over year to $1,075.8 million. Profitability in the unit increased 14% year over year to $310.5 million.
Net sales in the Hawthorne segment rose 72% year over year to $302.9 million in the reported quarter, driven by strong demand in almost all categories. The segment’s profit surged 145% year over year to $41.1 million.
Net sales in the Other segment increased 9% year over year to $114 million. The segment’s profitability rose 9% year over year to $14.4 million in the quarter.
At the end of the fiscal third quarter, the company had cash and cash equivalents of $48.3 million, up 32.7% year over year. Long-term debt was $1,516 million, down 3% year over year.
For fiscal 2020, the company revised its sales growth outlook.
In the U.S. Consumer unit, the company projects sales growth of 20-22% for the fiscal, up from 9-11% expected earlier. It now expects sales in the Hawthorne segment to rise 55-60% in fiscal 2020, up from 45-50% expected earlier.
Based on these assumptions, Scotts Miracle-Gro now projects adjusted EPS between $6.65 and $6.85 compared with earnings of $5.65-$5.85 expected earlier. Adjusted free cash flow is expected to be around $400 million, up from the earlier projection of roughly $350 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 58.36% due to these changes.
Currently, Scotts has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Scotts has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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