Shares of Scotts Miracle-Gro (NYSE: SMG) were moving higher this week after the lawn care specialist posted a better-than-expected profit in its fiscal third-quarter earnings report earlier this week, showing the company's turnaround is on track.
As a result, the stock was up 6.5% as of Thursday's close, according to data from S&P Global Market Intelligence.
Image source: Getty Images.
Scotts is on the mend
After a post-pandemic collapse in the stock, as consumers shifted away from at-home outdoor activities like gardening, Scotts seems to have rebalanced its business and is recovering.
The company reported 11% revenue growth in its core U.S. Consumer unit, and overall revenue was up 7% to $1.2 billion, matching analyst estimates.
Hawthorne, its cannabis-focused division, continued to shrink, with revenue down 28% to $67.7 million, though the company said sales of its proprietary Signature line were up 6% in the quarter.
Further down the income statement, gross margin jumped from 18.4% to 29.5% due to lower warehousing and transportation costs, lower material costs, and fewer inventory write-downs. As a result, adjusted earnings per share (EPS) nearly doubled from $1.17 to $2.31, beating the consensus of $1.93.
CEO Jim Hagedorn said, "Despite a sluggish start to the lawn and garden season, we successfully delivered significant POS growth, profitability and share gains across our consumer products portfolio."
What's next for Scotts
Looking ahead, the company reaffirmed its guidance for the U.S. consumer division, though it said Hawthorne sales are now expected to be down 35%-40% as it exits lower-margin distributed brands.
Earlier in July, it gave guidance for average annual growth of 3% through fiscal 2027. For this year, it continues to see adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $530 million-$540 million, representing an approximately 20% increase with U.S. consumer sales growth of 5%-7%.
Still, as the EPS growth shows above, Scotts has made significant margin improvements, setting the company up for a continued recovery if it can deliver on the top line.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Scotts Miracle-Gro. The Motley Fool has a disclosure policy.
