Scotts Miracle-Gro Faces Downgrade By Stifel Analyst Amid Fears Of Shortfall In Consumer Business

Stifel analyst W. Andrew Carter downgraded The Scotts Miracle-Gro Company SMG to Hold from Buy at a decreased price target of $72 from $78. 

The analyst is cautious about the company ahead of Q3 FY23 results, given the absence of a planned June month update.

Carter believes the company's consumer business fell short of the demands to fully reset channel inventories, with higher-than-planned promotional investment posing a risk. 

The analyst reduced the estimate for FY23 EPS to $2.54 from $2.70, with lowered revenue/gross margin estimations and assuming a high-single-digits decline in operating profit. 

The analyst now estimates the gross margin to decline around 100 basis points Y/Y, at par with the company's guidance. 

Carter expects increased promotional activity to push full-year pricing to the low end of high-single-digits with no volume increase.

While the analyst believes SMG performed well in the lawn and garden season in 2023, but estimates delayed season start and unfavorable Northeast weather in May to be an overhang. 

Nevertheless, the analyst expects significant earnings recovery in FY25, growing 62% vs FY23.

Also Read: This Scotts Miracle-Gro Analyst Is Turning Bullish: 2024 Could Be 'Best Year Ever'

Price Action: SMG shares are trading lower by 2.3% at $69.92 on the last check Thursday.