Debra Borchardt
The Scotts Miracle-Gro Company (NYSE: SMG) announced company-wide sales increased 32% in its fiscal second quarter to $1.83 billion versus $1.38 billion a year earlier. This beat the analyst estimates on Yahoo Finance which were $1.73 billion. Sales for the hydroponic segment known as Hawthorne increased 66% to $363.8 million. Scotts said that due to its fiscal calendar, the second quarter of 2021 ended six days later than the second quarter of fiscal 2020. The shift had a sales impact of approximately $122.5 million within the lawn and garden business, impacting the U.S. Consumer and Other segments.
The company beat analyst estimates which were $5.42 according to Yahoo Finance by delivering GAAP earnings from continuing operations of $5.44 per share. This also was much higher than last year’s $4.43 per share. Non-GAAP adjusted earnings, which exclude impairment, restructuring, and other non-recurring items, and are the basis of the company’s financial guidance, were $5.64 per share compared with $4.50 a year ago.
“The record level of consumer demand we have seen for our lawn and garden products is greater than we expected and may provide upside to the updated guidance we provided for our U.S. Consumer business in early April,” said Jim Hagedorn, chairman and chief executive officer. “Consumers told us entering the season that they intended to stay engaged with lawn and garden and, so far, that is exactly what they are doing. Retailer support for the category remains strong as we enter a period of challenging year-over-year comparisons.
“We also continue to exceed expectations at Hawthorne as we reported our fifth consecutive quarter of sales growth in excess of 60 percent and another month of strong results in April. Given the current momentum of this business, we feel comfortable once again increasing our sales guidance for Hawthorne to a range of 30 to 40 percent growth on a fiscal year basis.”
Commodity Costs Rising
“The margin pressure we are experiencing from higher commodity and distribution costs is expected again in the third quarter and should begin to moderate with year-over-year pricing that takes effect in the fourth quarter,” said Cory Miller, senior vice president and interim chief financial officer. “Given cost pressures and other investments necessary to keep pace with recent growth trends, we have communicated to our retail partners our intention to increase prices of our consumer lawn and garden products by mid-to-high-single digits effective in August. A similar price increase was implemented at Hawthorne in recent weeks.”
Outlook
Scotts said it now expects Hawthorne sales to increase 30% to 40% for fiscal 2021. While it reaffirmed its sales outlook for the U.S. Consumer segment of 4% to 6% growth, the company said sales growth in the segment continues to trend above that level and believes upside to be possible on a full-year basis. The gross margin rate is now expected to decline 175 to 225 basis points with the added downward pressure due to higher commodity and distribution costs. Scotts said it expected to provide an update on its full-year expectations in early June.
“We continue to see tremendous momentum in all aspects of the business, and we are extremely optimistic in our ability to drive another year of record results,” Hagedorn said. “Obviously, consumer activity in May is extremely important, and it is historically one of the most critical months of the lawn and garden season. That said, we are encouraged by the level of consumer participation we have been seeing so far this season and are optimistic that consumers will remain engaged throughout the season.”
