Scotts Miracle-Gro (SMG) Plunges After Full-Year Guidance Withers
PUBLISHED ON: Jun 14, 2012
Shares of Scotts Miracle-Gro (SMG: Charts, News), the company best known for its namesake lawn and garden care products, plunged over the past two days, after it warned that it would miss its full year guidance for fiscal 2012. The Marysville, Ohio-based company now expects to miss its full year adjusted earnings target of $2.65 to $2.85 per share, as well as its sales growth target of 6% to 8%.
Sluggish consumer demand, exacerbated by weak home sales in the United States, has significantly weakened the market for lawn and garden care products. The second quarter of the year, during the spring, is considered the start of the lawn care and gardening season, while mid to late May is considered its peak. Scotts Miracle Gro's weak May numbers have scared off many skittish investors, still nervous over the uncertain direction of the volatile markets. The company predictably noted that adverse weather and an unstable economic environment would weaken its European business and cause the segment's earnings to fall far short of expectations. Poor sales of flowers and vegetables also dented demand for the company's products. Lastly, the company's gross margins are expected to contract due to unfavorable product mix and unplanned distribution costs, which stem from the stronger-than-expected performance of its controls and mulch businesses. Higher promotion costs are also likely to hit operating margins.
Although CEO Jim Hagedorn, stated that he was "clearly disappointed" with the company's reduced guidance, he focused on the company's strengths. "We have seen unit growth in consumer purchases of our lawn fertilizer products for the first time in several years," he stated. "Our controls businesses - where growth in consumer purchases has been in the high teens - are having their best season ever. In addition, our mulch business has grown by about 25 percent through the first seven months of the year."
Scotts Miracle-Gro operates in three segments - Global Consumer, Global Professional and Scotts LawnService. Through these businesses, the company caters to agricultural, residential and commercial properties. Its businesses are primarily located in North America and the European Union. It does not have a significant presence in Asia or other emerging markets. The company generates approximately $3 billion in sales annually. While the short term forecast for lawn and garden products remains negative, longer term sentiment is positive, especially in chemicals and fertilizers, which will be increasingly in demand as the global population rises and the amount of arable land decreases.
Shares of Scotts Miracle-Gro have shed 23% of their value over the past twelve months, despite a 4% increase in the S&P 500. The stock is trading at 12.3 times forward earnings with a 5-year PEG ratio of 1.4, and pays a quarterly dividend of 30 cents per share - a 3% yield at today's prices. The dividend has increased steadily since being introduced six years ago.
Other News About SMG
Scotts Miracle-Gro expects to fall short of 2012 sales goals
Scotts Miracle-Gro cuts its guidance, and shares plunge.
Scotts Miracle-Gro sell-off a buying opportunity, says BGB Securities
At least one analyst remains bullish on the company's growth prospects. Other Stocks in the News
McDonald's Sales Drop in Asia Signals Fast-Food Slowdown
Is McDonald's drop a buying opportunity?
Yum Brands falls on China worries
Yum shares slide as China bulls fade.
Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.