Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Scotts Miracle-Gro Stock Rose 10% in June

By Reuben Gregg Brewer - Jul 4, 2019 at 9:04AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's been on a big run in 2019, but an early June announcement helps explain why investors are so excited.

What happened

Shares of Scotts Miracle-Gro ( SMG 1.06% ) rose 10% in June, according to data provided by S&P Global Market Intelligence. That continues a yearlong trend that led to an impressive stock advance of about 60% through midyear. While a general market advance is surely a piece of the puzzle here, it isn't the whole story. An early June news release updating the company's guidance helps explain why Scotts' performance in the first half of 2019 was more than three times that of the S&P 500 Index.

So what

In November 2018, while announcing fiscal 2018 earnings, Scotts projected that it would see an earnings advance of 10% to 11% in fiscal 2019.

That was built on two platforms. The company's core lawn-care segment was expected to provide 1% to 2% growth, which is reasonable for this mature business. Its Hawthorne segment, meanwhile, was projected to chip in 8% to 9% growth. Hawthorne is a relatively new segment for Scotts, focused around hydroponic gardening. Management is specifically looking to serve the marijuana market through this division. 

A marijuana leaf with a line superimposed over it.

Image source: Getty Images

The company reaffirmed its guidance when it releases fiscal first- and second-quarter results in January and May. But in early June, it provided an update prior to earnings that it was now looking for growth of 13% to 14% in fiscal 2019. That update was driven by strength on both sides of the business. Lawn care's growth was updated to 3% to 4%, while Hawthorne's growth was increased to 12% to 15%. 

This is wonderful news for Scotts, since the Hawthorne business didn't have the best year in 2018. Sales were down notably when excluding acquisitions, suggesting that it wasn't gaining the traction it had hoped for in the marijuana space. But the strong showing in fiscal 2019 appears to be proving that management's long-term thesis is correct. Investors are reacting accordingly and pushing the shares higher.   

Now what

Building the Hawthorne business has meant a significant increase in debt on Scotts' balance sheet. So far, it has been able to handle the weight, but it is something that investors need to watch carefully. It increasingly appears to be on the right track, and investors who want some exposure to marijuana but don't want to own a grower should probably be taking a look here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Scotts Miracle-Gro Company Stock Quote
The Scotts Miracle-Gro Company
$139.69 (1.06%) $1.47

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/02/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.