Scotts Miracle-Gro Misses Estimates, Lowers Guidance As Hawthorne Business Dives

The Scotts Miracle-Gro Company (NYSE: SMG) saw its shares pop in early trading despite the gardening company’s downbeat earnings. The lawn care and hydroponic company released its results for the third quarter ending July 2, 2022, with sales falling by 26 % on declines in both major business segments to $1.19 billion. This missed the Yahoo Finance average analyst estimate for sales of $1.23 billion.

U.S. Consumer segment sales declined 14 %  to $904.5 million from $1.05 billion. The hydroponic group called Hawthorne said sales decreased 63% to $154.5 million compared with $421.9 million during the same period last year.

Scotts reported a GAAP net loss per share of $8.01, which includes pre-tax impairment and restructuring charges of $724.2 million. Non-GAAP adjusted earnings per share, which is the basis of the Company’s guidance, was $1.98. On a positive note, SG&A decreased 30% to $135.8 million due to lower accruals for annual incentive compensation and cost-reduction efforts.

CEO Jim Hagedorn said, “While consumer purchases are down 8 percent in units year-to-date, that performance is in line with the guidance we laid out at the beginning of the year. We are extremely encouraged that consumer purchases in May and June were at near-record levels, once again showing the resiliency of the category. Unfortunately, shipments to our retailer partners did not keep pace with consumer demand, as retailers in all channels took steps to lower their own inventory levels.”

He added, “The lower-than-expected sales in our U.S. Consumer segment, combined with continued pressure on Hawthorne sales due to oversupply issues in the cannabis industry, leave us unsatisfied with our financial results and with higher leverage than we want to maintain. That is why we have launched the business transformation effort we are calling Project Springboard, which includes a series of aggressive steps to return the business to an appropriate level of performance.

GAAP loss from continuing operations was $217.5 million, or $3.91 per share, compared with income of $566.0 million, or $9.90 per share, in the prior year. Non-GAAP adjusted earnings, which exclude impairment, restructuring, and other non-recurring items, were $343.3 million, or $6.11 per diluted share, compared with $573.1 million, or $10.04 per diluted share last year.

Hawthorne

Hawthorne segment sales decreased 63 percent to $154.5 million compared with $421.9 million during the same period last year. Year-to-date Hawthorne sales decreased 50% to $547.7 million. Some of the company’s losses stemmed from Hawthorne, which saw impairment charges of $632.4 million related to goodwill and certain intangible assets in the segment. Scotts said it took inventory write-down charges of $45.9 million with its decision to discontinue and exit the market for certain lighting products and brands.

Looking Ahead

Scotts dropped its full-year sales guidance in the U.S. Consumer segment due to lower-than-expected replenishment orders from retail partners. The company said it now expects sales to decline 8 to 9%. The company also said it expects further SG&A favorability and is now guiding full-year SG&A down 15%. As a result of these changes, the full-year adjusted EPS outlook is now expected to be $4.00 to $4.20.

“Our guidance in early June accounted for the reduction in May replenishment orders that we saw at our largest customers,” Miller said. “However, retail inventory reduction efforts have accelerated throughout June and July, driving a larger decline in our full-year sales expectation. The outlook for SG&A has improved from the previous guidance we communicated in June. The Project Springboard team achieved the initial cost savings target and identified additional opportunities to reduce spending across the business.”