Scotts Miracle-Gro Soars in 2013, but Where Is the Retail Revenue Growth?http://www.fool.com/investing/general/2013/10/23/scotts-miracle-grow-soars-in-2013-where-is-the-ret.aspx GC Mays, Mays
October 23, 2013
Scotts Miracle-Gro (NYSE: SMG) has soared in 2013, rising just under 30%, much to shareholders' satisfaction. However, through the first nine months of the company's 2013 fiscal year, revenues are down 2.1% versus initial company estimates of 1%-3% growth in sales on flat volume. If they are unable to make up the deficit in their last quarter of the year, it will mark the third straight year the company has fallen short of its initial estimates. The company's revenues are closely tied to the fortunes of their downstream partners Home Depot (NYSE: HD), Lowe's (NYSE: LOW), and Wal-Mart (NYSE: WMT), which collectively account for roughly two-thirds of their annual revenues.
What is curious about the stock's mysterious growth spurt is that revenues have been flat since 2008, while earnings have been erratic. The company's grass seed has sprouted more growth than company earnings have over the last six fiscal years.
Scott's Revenues Mirror Outcomes of Largest Retail Partners
Wal-Mart does not report specific outdoor living and horticulture sales numbers, which are a part of its home strategic merchandise unit. However, its home unit represented 7% of the company's total sales in its fiscal 2013, which ended on Jan. 31. Wal-Mart sales were 14.7% of Scott's Miracle-Gro revenues in its fiscal 2012. Home Depot is the company's largest customer, representing 32.2% of net sales in fiscal 2012, while Lowe's accounted for 18.4% of revenues.
The persistent rains in early spring were the likely cause of outdoor revenues moving forward into the retailer's fiscal 2nd quarter, which overlaps Scott's 3rd quarter. There are two circumstances when homeowners are reluctant to work on their lawns: during periods of excessive moisture where muddy conditions keep you out of the yard, or a drought where no amount of seed or fertilizer will be beneficial without water.
So what's the deal with the stock?
What's the real deal?