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Scotts Miracle-Gro Co. said Tuesday that it is maintaining its full-year adjusted earnings outlook, though the company expects a 40% decline in Hawthorne sales during the fiscal first quarter due to a slowdown in the cannabis market and supply chain issues. The fiscal first quarter ended January 1.
Hawthorne is a wholly-owned subsidiary of Scotts Miracle-Gro
SMG,
specializing in items for indoor and hydroponic growing.
Adjusted earnings for the fiscal year are expected to be in the range of $8.50 to $8.90.
The FactSet consensus is for full-year sales of $4.9 billion and EPS of $8.58.
See: Investors in cannabis companies burned by stock-market losses in 2021 even as the pot business grows
Chief Financial Officer Cory Miller said in a statement that the company expects the supply chain problems to be resolved by the end of January and pre-orders for the second and third quarters are healthy.
“However, the decline we’ve seen in the first quarter, against a 71% growth comparison a year ago, is greater than we had anticipated. Based on our current view of the market, we are lowering our full-year sales guidance for Hawthorne to a range of 0 to minus 10% on a year-over-year basis,” he said.
Scotts Miracle-Gro also announced two acquisitions on Tuesday: Luxx Lighting for $215 million, and True Liberty Bags, a liners and storage company for the hydroponic market, for $10 million.
Scotts says Luxx will add $100 million in sales and $20 million in operating income annually to Hawthorne’s business. Luxx is expected to generate $75 million in sales for the remainder of fiscal 2022, and is expected to be earnings neutral for the first year. Hawthorne’s full-year sales guidance includes consideration of the Luxx acquisition, and “assumes a return to growth during the second half of the year,” Miller said.
Raymond James analysts followed by reiterating their strong buy rating on Scotts’ stock but by shaving $5 from the price target, bringing it to $195.
“Our strong buy rating on the shares of Scotts Miracle-Gro reflects both our long-term optimism regarding the company’s Hawthorne hydroponics segment, as well as our view that much of the recent expansion in the addressable market for its U.S.,” wrote Raymond James in a note. “Consumer segment during the COVID pandemic should prove sustainable.”
Scotts announced in August 2021 that it had acquired HydroLogic Purification Systems in a $65 million deal and Rhizoflora, a nutrient company that was added to the Hawthorne portfolio.
Scotts Miracle-Gro is scheduled to host its annual meeting on Jan. 24 and announce first-quarter results on Feb. 1, according to a FactSet calendar.
Scotts Miracle-Gro stock fell 2.1% in Tuesday trading, and has slumped 19.7% over the last year.
The S&P 500 index
SPX,
has gained 29.4% over the period.
