The Scotts Miracle-Gro Company

SMG Details

The Scotts Miracle-Gro Company (NYSE: SMG) is among the world’s most prominent brands of branded consumer products for lawn and garden care. The Scotts, Miracle-Gro and Ortho brands are market-leader in their categories.

Record Results in FY21 (For the Year Ended 30 September 2021)

• The company has delivered record financial results in FY21, driven by a company-wide sales growth and sustained growth in all major operating segments.
• The company-wide sales grew by 19% to a record $4.93 billion in FY21 from $4.13 billion in FY20, with sales in the U.S. Consumer segment increased to $3.20 billion, up by 11% driven by robust consumer demand throughout the year.
• Hawthorne sales grew by 39% to $1.42 billion owing to strong growth in all category segments in emerging and legacy markets.
• GAAP earnings from continuing operations increased to $9.03 per diluted share against $6.78 per diluted share in FY20. While Non-GAAP adjusted earnings stood at $9.23 per diluted share compared with $7.24 per diluted share in the prior year.

Source: Company Reports, Analysis by Kalkine Group

Declared Quarterly Dividend

On 2 November 2021, the company's board of directors approved the payment of a cash dividend of $0.66 per share. The dividend will be paid to the shareholders on 10 December 2021.

Outlook

The company has guided achieving company-wide sales growth of 0-3% in FY22, where the U.S. Consumer segment sales are expected to remain between 0 to negative 4%. While it forecasts Hawthorne sales to grow by around 8-12%, maximum growth is anticipated in the second half of the year. The non-GAAP adjusted earnings per share are likely to stay in a range of $8.50-$8.90, and the gross margin is expected to decline by around 100-150 basis points. The company stated that a second pricing action would support the guidance in the U.S. Consumer segment that will offset the impact of commodity inflation.

Additionally, it has guided SG&A to remain in a range of negative 6% to positive 1%, and the interest expense is expected to increase by around $25 million. Further, it intends to repurchase up to $300 million in shares during FY22 in addition to the $113 million of share repurchases undertaken in FY21.

Key Risks

The prevailing COVID-19 pandemic could adversely impact its business, results of operation, financial condition, and/or cash flows. Further, it is exposed to the risk of changes in regulations or regulatory enforcement priorities that could lead to an increase in its costs or restrict its ability to market all of its products. It is also prone to climate change and unfavorable weather conditions that could adversely affect its financial results.

Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)

Technical Overview

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The company has delivered 9-month and a one-year return of ~-36.04% and ~-21.89%, respectively. The stock is trading lower than the average price of the 52-week low-high range for the stock at $133.36 - $254.34, respectively.

The stock has been valued using EV/EBITDA multiple based relative valuation (on an illustrative basis), and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average EV/EBITDA multiple (NTM) (Peer Average), considering its record financial results in FY21 and intention to continue pursuing acquisition opportunities.

Considering the factors above, we give a “Buy” recommendation on the stock at the closing market price of US$150.21 per share, down by 0.56% as of 14^th December 2021.

The Scotts Miracle-Gro Company (SMG) is a part of Kalkine’s Global Big Money Product

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices

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