Market Overview

Scotts Miracle-Gro Struggles to Find Earnings Growth

Scotts Miracle-Gro (NYSE: SMG) admitted back in June that sales were slowing in 2012 and that it likely would fall short of previous estimates for the full year. The leading marketer of branded lawn-care products is scheduled to report its third-quarter fiscal 2012 results Thursday, August 9 after the closing bell. Investors, who have already seen shares decline more than 10 percent in the past 90 days, may very well be bracing themselves.

Expectations

Analysts on average predict that Scotts Miracle-Gro will report per-share earnings of $1.90 for the three months that ended in June, as well as $1.11 billion in revenue. In the same period of 2011, the company reported a profit of $1.91 per share and $1.06 billion in revenue. Note that the earnings per share (EPS) estimate had dropped about five cents in the past 30 days. And while EPS results were better than expected in the previous two quarters, they fell short of analyst estimates in the two periods prior.

The company said in the first-quarter report that its margins shrank due to higher product costs. Its posted revenues fell short of consensus estimates despite a record level of consumer purchases in March. The share price dropped about 16 percent in the days following the report.

Looking ahead to the current quarter, the consensus forecast calls for a seasonal loss of $0.44 per share which is two cents narrower than the year before and revenue up more than 3 percent to $432.1 million. So far, analysts expect full-year per-share earnings to decline more than 11 percent to $2.44, as well as for revenue to be about 3 percent higher than in the previous year to $2.92 billion.

The Company

Scotts Miracle-Gro Company operates through two segments. The Global Consumer segment offers lawn and garden care products through outlets such as the Home Depot (NYSE: HD). The Scotts LawnService segment provides residential and commercial lawn care, tree and shrub care and pest control services. The company was founded in 1868 and is headquartered in Marysville, Ohio with a market capitalization of near $2.5 billion.

Competitors include Monsanto (NYSE: MON) and Spectrum Brands (NYSE: SPB). The former posted better-than-expected EPS in June, and the latter announced earlier this week that its third-quarter net income doubled due in part to acquisitions. Spectrum, which sells batteries and small appliances as well as lawn-care products also said it would initiate a quarterly common stock dividend.

During the three months that ended in June, Scotts Miracle-Gro declared a quarterly dividend, updated its full-year sales guidance and was the focus of an article in Barron's.

Performance

Scotts Miracle-Gro has a long-term EPS growth forecast of more than 10 percent, and its forward earnings multiple is less than the industry average price-to-earnings (P/E) ratio. The dividend yield is about 3 percent. But only two out of 12 analysts surveyed by Thomson First Call recommended buying shares. Not surprisingly, the mean price target is hardly any higher than the current share price. Short interest is about 9 percent of the float.

The share price is down more than 12 percent year to date, despite a rise of more than 2 percent in the past week. It is currently above the 50 day moving average, but still well below the 200-day moving average. Over the past six months, the stock has underperformed Monsanto and Spectrum Brands, as well as the broader markets.

Posted-In: home depot Monsanto Scotts Miracle-GroEarnings Long Ideas Short Ideas Previews Trading Ideas Best of Benzinga

 

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