Company Reports

Scotts Miracle-Gro is the largest and most recognizable name in the US consumer lawn and gardening market. The firm sells a wide array of products used for lawncare and gardening.

Narrow-moat Scotts Miracle-Gro, the market leader in US gardening, was one of the rare companies to benefit from the pandemic. As US consumers remained home, many chose gardening as a recreational activity, a trend that proved temporary. By 2021, profits nearly doubled from 2019 as the US home gardening industry boomed.

Scotts Miracle-Gro is the largest and most recognizable name in the US consumer lawn and gardening market. The firm sells a wide array of products used for lawncare and gardening.

Scotts Miracle-Gro's fiscal third-quarter results reflected the company's strong turnaround following two years of falling sales and profits in fiscal 2022 and 2023. Segment operating profit was up nearly 70% versus the prior-year quarter. The growth was driven by strong US consumer results owing to higher volumes, higher prices and lower unit production costs, as well as the first quarter of Hawthorne profitability since the third quarter of fiscal 2022.

Scotts Miracle-Gro announced reduced guidance for fiscal 2024 following weaker-than-expected US consumer sales. We had previously assumed Scotts would see lower US consumer sales, and our fiscal 2024 forecast already assumed the company would come in below management's forecast. Having updated our model for slightly lower US consumer sales in fiscal 2024, we are maintaining our $95 per share fair value estimate. Our narrow moat rating is also unchanged.

Scotts Miracle-Gro is the largest and most recognizable name in the US consumer lawn and gardening market. The firm sells a wide array of products used for lawncare and gardening.

Scotts Miracle-Gro reported stable fiscal second-quarter results as companywide adjusted EBITDA was down 2% versus the prior-year quarter, and there was a 28% sales decline in the Hawthorne business. The results were in line with our outlook for the cadence of the year. Having updated our model to incorporate fiscal second-quarter earnings, we maintain our $95 per share fair value estimate. Our narrow-moat rating is also unchanged.

Scotts Miracle-Gro is the largest and most recognizable name in the US consumer lawn and gardening market. The firm sells a wide array of products used for lawncare and gardening.

Shares of Canadian-licensed producers and US multistate operators rallied massively on news that the US Drug Enforcement Administration will proceed with rescheduling cannabis to Schedule III from Schedule I. Schedule I indicates it is considered to have a high potential for abuse and no medical value. In comparison, Schedule III drugs are considered less dangerous, with a lower potential for abuse and having some medical value. We view the April 30 news as the next step in a long process by the Biden administration to relax the current federal prohibition. We view the market reaction as a reflection of how much pressure these stocks have faced rather than any new development.

The Bundestag, the lower house of Germany’s legislature, passed a cannabis bill last month that would allow possession of up to 25 grams and home-growing of up to three plants. The law will become effective April 1 as planned after the Bundesrat, the upper house, voted not to send it to mediation committee on March 22. The law expands on July 1 to allow nonprofit cannabis grow clubs of up to 500 members and 50 grams per member.

New single-family home sales increased 4% in 2023 to 666,000 units, as homebuilders capitalized on a dearth of existing for-sale inventory while also offering more sales incentives, cutting base home prices, and building smaller homes to improve affordability. By the fourth quarter of 2023, homebuilders began to pull back on sales incentives as the average 30-year fixed mortgage rate retreated from 7.62% in October 2023 to 6.64% in January 2024. However, mortgage rates have trended higher recently, and we now forecast the average 30-year fixed rate will be 6.50% in 2024, up from our previous forecast of 6.10%. Even so, that’s lower than the 2023 average of 6.81%, and we think homebuilders won’t hesitate to increase sales incentives if needed; they still enjoyed above-average gross profit margins last year with elevated incentives. As such, in 2024, we think new-home sales will increase 9% to 730,000 units and single-family housing starts will increase 4% to 985,000 units. However, we expect total housing starts will decline roughly 5% to 1,345,000 units due to a 23% decline in multifamily starts to 360,000 units, as there’s currently approximately 1,000,000 multifamily units under construction—the largest backlog in at least 50 years.

Scotts Miracle-Gro is the largest and most recognizable name in the U.S. consumer lawn and gardening market. The firm sells a wide array of products used for lawncare and gardening.

Scotts Miracle Gro’s fiscal 2024 first-quarter earnings saw sales continue to decline across its U.S. Consumer and Hawthorne segments, but we see improvements in both segments to restore profits. We’ve lowered our fair value estimate to $95 per share from $100 after incorporating a weaker near-term Hawthorne outlook as management will reduce third-party sales, leading to lower long-term sales and profits. Our narrow-moat rating is unchanged.

Scotts Miracle-Gro is the largest and most recognizable name in the U.S. consumer lawn and gardening market. The firm sells a wide array of products used for lawncare and gardening.

New-home sales have rebounded since the spring of this year as sales incentives and price reductions have attracted buyers who have fewer options in the supply-constrained existing-home market. That said, homebuilder sentiment data tells us that smaller builders remain cautious. Even so, we forecast single-family starts to increase by 3% in 2024, to 0.92 million units. However, we project this increase in single-family starts will be more than offset by a 24% decline in multifamily starts, to 0.36 million units. Multifamily construction has been robust for the past three years, but a record construction backlog and higher construction and financing costs have tamed developers' appetite for new multifamily projects.

Scotts Miracle Gro’s fiscal 2023 fourth quarter showed progress on the company's strategy to sell excess inventory and run its plants at lower capacity as a way to pay down debt. Having updated our model to incorporate the results, we maintain our $100 per share fair value estimate. Our narrow moat rating is also unchanged.

Scotts Miracle-Gro is the largest and most recognizable name in the U.S. consumer lawn and gardening market. The firm sells a wide array of products used for lawncare and gardening.

New-home sales have remained resilient despite worsening housing affordability in recent months amid rising mortgage rates, with little relief in home prices in most markets. Year-to-date new-home sales through July were about even with the year-ago period, compared with a 22% decline in existing-home sales. The key to homebuilders’ relative success this year has been their ability to improve affordability by offering sales incentives, lowering base prices, and building smaller homes. According to the National Association of Home Builders, the share of builders offering incentives was 55% in August, up from 52% in July but down from 62% last year. One fourth of homebuilders reported lowering base prices by 6% on average. Homebuilders have also boosted production of speculative homes to capitalize on the tight supply of existing for-sale homes. Spec building also helps builders better manage construction cycle times and costs.

On Aug. 30, shares of the U.S. cannabis multistate operators rallied around 20%, with Canadian licensed producers up less, following news that the U.S. Department of Health and Human Services recommended to the Drug Enforcement Administration that it reclassify cannabis to a Schedule III drug from Schedule I. Cannabis, along with heroin and ecstasy, is currently listed as Schedule I, which means it is considered to have a high potential for abuse and no medical value. Schedule III drugs are considered less dangerous, with a lower potential for abuse and having some medical value. Lower scheduling would not necessarily be a panacea for the cannabis industry, but it could be enough to bring some important benefits to U.S. multistate operators, including paying normal tax rates, improved banking access, and potential listing on a major U.S. stock exchange.

Scotts Miracle-Gro's fiscal 2023 third quarter showed small progress in the company's turnaround efforts to restore profitability. Adjusted EBITDA was down 35% versus the prior-year quarter as the combination of cost inflation, lower volumes, and reduced plant capacity utilization weighed on profits. We've lowered our near-term outlook for the U.S. consumer business to account for the slowdown persisting longer than we had anticipated. Separately, we reduced our outlook for Hawthorne, assuming far slower revenue growth and profitability as the business' smaller operational footprint reduces its long-term growth trajectory.