The lawn is not safe from the current economic downturn and the grass is definitely not greener for The Scotts Miracle-Gro Company (NYSE: SMG). After a “record” Q2 2022 earnings release, the garden products manufacturer announced today lowering its full-year guidance.
As the firm braces for the harsh market effects of inflation, it adjusted its topline guidances. It now expects US consumer sales to fall 4% – 6% for the year and Hawthorne sales to decline by 40% – 45%.
Adjusted earnings per share are now guided to land between US$4.50 – US$5.00. In Q2, the firm recorded US$5.03 adjusted earnings per share and announced that its previous guidance of US$8.00 adjusted earnings per share is “likely unattainable”.
“The changes we have seen since our last public comments in early May are clearly not what we would have expected,” CEO James Hagedorn said. “The revised guidance we are providing is our best estimate of where things currently stand in a fluid and rapidly evolving market.”
Following the announcement, the firm’s shares opened 11.48% lower than its last closing price.
The adjustments stemmed from the anticipated “above average declines” in lawn fertilizer and grass seed sales due to “poor spring weather.” The company also observed lower-than-expected replenishment orders from retailers. In the US consumer segment alone, it has observed retailer orders below US$300 million than expected.
“This surprising trend has put significantly greater pressure on our fixed cost structure that, when coupled with the commodity cost increases we have experienced since the start of the war in Ukraine, will cause us to fall well short of the revised financial targets we established in March,” Hagedorn added.
The company is making the guidance cuts despite observing an improvement in consumer purchases, minimizing the year-to-date decline in POS for the month to 6% in dollar terms and 9% in volume terms.
The garden brand also said it is holding discussions with its debt partners “to allow for up to two additional turns of leverage in the near-term,” despite its current facilities allowing up to a 4.5 debt-to-EBITDA ratio.
In addition to guidance cut and debt boost, the firm also said it has taken “decisive steps” to reduce selling, general, and administrative expenses by 12% – 13% in 2022. While these changes would reflect “restructuring charges” for the remainder of the fiscal year, the company reminded that these won’t affect the adjusted earnings as these are considered non-recurring costs.
The Scotts Miracle-Gro Company last traded at US$102.04 on the NYSE.
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