Scotts Gets A Lift On Better Than Expected Earnings, But Hawthorne Struggles

Hydroponics brand Hawthorne continues with weakened sales.

The Scotts Miracle-Gro Company (NYSE: SMG) announced results for its fiscal first quarter ending December 31, 2022, with revenue dropping by 7% to $526.6 million. This beat the Yahoo Finance average analyst estimate which was $501 million.

The company reported that the U.S. Consumer segment sales increased 8% to $369.0 million from $342.4 million last year. Hawthorne segment sales decreased 31 % to $131.5 million, compared with $190.6 million during the same period a year ago, reflecting the continued challenges in the hydroponic industry said Scotts.

The stock had jumped 9% in trading on Tuesday and saw another slight bump in early trading as the earnings weren’t as weak as the company had forecast. The stock was lately selling at $73.90, an improvement over the 52-week low of $39, but far from its year high of $147.

Scott’s reported a GAAP loss of $64.7 million, or $1.17 per share, compared with a prior year’s loss of $50.0 million, or $0.90 per share. This also beat the analyst estimate for losses of $1.32 per share. The current and prior results include pre-tax impairment, restructuring, and other non-recurring charges of $18.7 million and $1.8 million, respectively. Excluding these charges, the non-GAAP adjusted loss in the quarter was $56.4 million, or $1.02 per share, compared with a loss of $48.6 million, or $0.88 per share, in the first quarter of 2022.

“The first quarter reflects our disciplined approach to reorient the business and strengthen the operational and financial performance of the Company,” said Jim Hagedorn, chairman and CEO. “We have further positioned Scotts Miracle-Gro for long-term growth and shareholder value. We are comfortably within our leverage requirement and expect to remain on this trajectory through the fiscal year. As for Project Springboard, we have a line of sight to annualized savings above the initial $185 million target, creating opportunities to reinvest in the business.

Hawthorne Weakness

The company noted that higher commodities and an unfavorable fixed cost leverage, primarily related to volume loss at Hawthorne and lower production volumes in our U.S. consumer business, continued to drive the gross margin rate declines as expected for the quarter.

2023 Outlook

Scott’s updated its outlook for fiscal 2023 as compared to fiscal 2022 as follows:

  • 20 to 30% decline in Hawthorne segment net sales
  • Low single-digit decline in total Company net sales
  • Low single-digit decline in gross margin rate
  • Low single-digit percentage growth in adjusted operating income
  • Low single-digit percentage growth in adjusted EBITDA
  • Interest expense increase of approximately $60 million
  • Effective tax rate of 26 to 27 percent
  • Free cash flow of $1 billion over the next two years

Hagedorn added, “Record December shipments in the U.S. Consumer business contributed to a strong early season buildout demonstrating confidence in the lawn and garden season. Our focus now is on early consumer engagement and POS lifts in coordination with retail partners. While Hawthorne continues to manage through a challenging market, we are committed to returning the business to profitability by the end of this fiscal year. Overall, we are in a stable place and are well prepared to execute on our full-year plan.”

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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