Lawn and garden products manufacturer ScottsMiracle-Gro Co. (NYSE: SMG) stock surged on its Investor Day update ahead of fiscal Q3 2024 earnings release. The company reaffirmed its full-year 2024 outlook and further added that it expects 3% YoY growth in its U.S. consumer segment from 2025 to 2027. Its products are widely used for agriculture by consumers of plants and lawn care. There is also a growing population of cannabis growers using their products. They are a benefactor from cannabis legalization and decriminalization, which includes 46 states to date.
Scotts Miracle-Gro operates in the basic materials sector, competing with fertilizer and agricultural chemicals companies like Intrepid Potash Inc. (NYSE: IPI), The Mosaic Co. (NYSE: MOS), and CF Industries Holdings Inc. (CF).
ScottsMiracle-Gro Portfolio of Brands
While ScottsMiracle-Gro may sound like a single product line, it actually owns a portfolio of brands and products. Here are some of its core lawn and garden brands.
Scotts is the flagship brand of lawn care products, including seeds, weed control, and fertilizers. Miracle-Gro is designed to help gardeners achieve vibrant and lush blooms through its plant foods and soil improvement products. Ortho and Tomcat brands specialize in lawn and garden disease and pest control products that help eliminate diseases, weeds, and insects.
Its hydroponic and indoor gardening brands include General Hydroponics, which sells indoor gardening and greenhouse equipment and nutrients, which is also popular with cannabis growers. AeroGarden offers indoor gardening systems, enabling users to grow plants without soil.
Roundup Health Concerns and Cancer Lawsuits
Roundup sells herbicides that have been under much scrutiny from lawsuits alleging that they cause health issues and cancer. Monsanto is the actual owner of Roundup, but ScottsMiracle-Gro has been the exclusive marketer and distributor. Monsanto was acquired by Bayer Aktiengesellschaft (OTCMKTS: BAYRY).
SMG Attempts to Breakout of a Descending Channel Ahead of Earnings Release
The daily candlestick chart on SMG depicts a descending price channel comprised of lower highs and lower lows. The Investor Day guidance helped to bounce SMG through the upper trendline resistance, causing it to peak at $70.00 before retesting. The reversion will need to stay above the upper trendline to successfully breakout of the channel. The daily relative strength index (RSI) stalled around the 55-band, which could indicate a potential divergence. Pullback support levels are at $64.57, $61.51, $58.43, and $56.05.
Looking Back at Q2 2024
In its fiscal Q2 2025 earnings report, ScottsMiracle-Gro reported EPS of $3.69, beating consensus estimates by 25 cents. Revenues fell 0.4% YoY to $1.53 billion, beating $1.5 billion consensus estimates. The company reaffirmed its previously forecast non-GAAP fiscal 2024 guidance. The company's primary goal is to restore a strong balance sheet with significant improvements in leverage and working capital. The company plans to generate an adjusted EBITDA of $575 million and a free cash flow of $560 million.
Recapping Its 2024 Investor Day Outlook
Fast forward to July 16, 2024, the company provided updates at its Investor Day. ScottsMiracle-Gro will pursue growth opportunities at emerging touchpoints, including omnichannel retail and Hispanic consumers. Further investments will be made in technology and infrastructure for predictive analytics and optimized service models to fuel margin growth. The cumulative effect will be a $150 million cost savings in the U.S. Consumer business supply chain cost savings over the following three years and a projected return to adjusted gross margin rates above 30%.
The company will continue to transform its Hawthorne subsidiary from a distributor to a branded solution provider focusing on proprietary signature brands. These brands are expected to contribute to adjusted earnings beginning in fiscal 2025 with single-digit sales growth weighted towards higher-margin consumable versus durable products.
ScottsMiracle-Gro Provides Midterm Targets
The company expects to average 3% net sales growth in the U.S. Consumer business through fiscal 2025 to 2027. Non-GAAP adjusted gross margin is expected to return above 30%. Delivering these mid-range targets will achieve a total non-GAAP adjusted operating margin above 15% and adjusted EBITDA above $600 million.
ScottsMiracle-Gro Reaffirms Fiscal 2024 Outlook
ScottsMiracle-Gro reaffirmed that it is on track to achieve its updated full-year guidance provided in June, which was $1 billion in free cash flow over 2 years, delivering the remainder of $560 million in fiscal full year 2024. It expects to pay down an additional $350 million in debt and drive full-year gross margin improvement of at least 250 bps. The company is encouraged by consumer engagement with unit point-of-sale (POS) through June up 10% YoY in the wake of challenging weather and macroeconomic conditions.
ScottsMiracle-Gro analyst ratings and price targets are at MarketBeat. The consensus analyst price target of $71.67 implies a 6.66% upside. Out of six analyst ratings, two have a Buy, and two have a Hold rating.
