Scotts Micracle-Gro Stock Slides On Hydroponic Woes

The Scotts Miracle-Gro Company (NYSE: SMG) stock was dropping 6% on news that the company lowered its full-year sales guidance for its hydroponic Hawthorne division. In addition, Scotts said the reduction would likely lead to adjusted earnings per share that are lower than previously expected. Shares were lately selling at $119, a big drop from the year’s high of $254.

Speaking at the Raymond James 43rd Annual Institutional Investors Conference, CFO Cory Miller said the Company now expects Hawthorne sales to decline 15% to 25%, including the benefit of acquisitions. The company noted that sales in the segment have been challenged for several months due to an oversupply of cannabis, which is leading to a slowdown in both indoor and outdoor cultivation.

“We believe Hawthorne sales have found the bottom in terms of average daily volume,” Miller explained. “However, there is a seasonal element to the business that would normally be in play by now that has not materialized to the extent we anticipated. While sales volume has begun to improve recently, the year-over-year rate of decline has expanded and that trend appears likely to carry through March.”

The revised Hawthorne sales outlook means ScottsMiracle-Gro is unlikely to reach the low end of its guidance for non-GAAP adjusted earnings per share. Miller said management remains optimistic about the continued strength of the U.S. Consumer segment and is working to moderate the earnings gap from the shortfall in Hawthorne sales with a goal of achieving non-GAAP adjusted earnings per share of at least $8.00.

“The midpoint for our sales guidance for our U.S. Consumer business continues to assume an 8-point decline in unit volume on a full-year basis and the business continues to significantly outperform against that plan,” Miller said. “Consumer purchases, in units, entering March are essentially flat from year-ago levels and shipments to retailers through five months are at record levels. Still, it is too early in the season to adjust our outlook for the business. However, we and our retail partners remain encouraged by the level of consumer participation we continue to see as we prepare for the peak weeks of the season.”

During his presentation to investors, Miller also said the company no longer expects a significant acquisition in fiscal 2022 to bolster its presence in the live goods category. ScottsMiracle-Gro had been actively pursuing such an opportunity over the past year but has ended those discussions.

“We see live goods as critical to our future with growth in this category through M&A remaining a major component of our strategic plan,” Miller said. “However, our M&A strategy has been successful over the last several years because we have remained disciplined in our approach and been willing to step away when the economics or other factors no longer make sense.”

Scotts said expects to provide a further update on May 3, 2022, when it releases its second-quarter results.

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