Scotts Miracle-Gro Beats, Reaffirms - Analyst Blog

The Scotts Miracle-Gro Co. (SMG) recorded a 19.0% growth in fiscal 2010 third-quarter GAAP net income to $175.9 million from $147.8 million in the year-ago period mainly due to better pricing and cost containment initiatives. Earnings from continuing operations came in at $2.61 per share, easily beating both the Zacks Consensus Estimate of $2.46 and the year-ago result of $2.34 per share.

Bolstered by the better-than-expected performance, Scotts Miracle-Gro doubled its quarterly dividend to 25 cents per share, which will be payable Sep 10, 2010 to shareholders of record as on Aug 27, 2010. Moreover, the company also authorized a $500 million program to buy back shares in the next four years.

During the quarter, Scotts Miracle-Gro posted a modest 0.6% growth in net sales to $1.24 billion from $1.23 billion in the year-ago quarter as the company witnessed improved sales at major U.S. retailers. Scotts Miracle-Gro’s flagship Global Consumer division logged a 0.3% year-over-year growth to $1.09 billion. Global Professional segment sales grew 3.5% to $71.9 million, while Scotts LawnService posted a growth of 3.0% to $81.3 million.

Scotts Miracle-Gro’s quarterly gross profit increased 6.1% to $504.8 million, while gross margin expanded 210 basis points (bps) to 40.7% primarily due to improved pricing. Selling, general and administrative expenses declined 3.9% year-over-year to $214.4 million mainly due to management initiatives to control costs. Accordingly, operating income jumped 16.2% year-over-year to $290.5 million, while operating margin expanded 310 bps to 23.4%.

Scotts Miracle-Gro ended the quarter with cash and cash equivalents of $78.7 million and long-term-debt of $690.2 million, compared to a cash balance of $149.2 million and long-term debt of $1,120.6 million in the year-ago period.

Looking ahead, Scotts Miracle-Gro reaffirmed its adjusted EPS guidance of $3.25 to $3.35 per share for the fiscal year ending September 2010, in line with the Zacks Consensus Estimate of $3.30 per share, which dipped a penny over the past 2 months. For the next fiscal, the Zacks Consensus Estimate is currently pegged at $3.64 per share, which moved up a penny over the past 2 months.

Scotts Miracle-Gro is a leading manufacturer and marketer of consumer lawn and garden products as well as professional horticulture products. The company’s portfolio includes brands such as, Scotts, Miracle-Gro, Ortho, Evergreen, Fertiligene, Celaflor, KB, Substral and Levington.

We currently have a short-term Zacks #3 Rank (Hold) rating and a long-term Neutral recommendation on Scotts Miracle-Gro.
 
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