What happened

Shares of Scotts Miracle-Gro (NYSE:SMG) were up 9.3% as of 3:06 p.m. EDT after rising as much as 11% earlier in the day. The big jump came after the company announced its fiscal 2019 third-quarter earnings results before the market opened on Wednesday.

Scotts reported 18% year-over-year revenue growth. It handily beat consensus Wall Street revenue and earnings estimates. The lawn and garden product supplier also raised its full-year 2019 revenue and earnings guidance.

Cannabis plant under lights

Image source: Getty Images.

So what

There were two big stories in Scotts' Q3 results that made investors optimistic about the company's future. First, Scotts' Hawthorne segment, which focuses on supplying products to the cannabis industry, delivered a fantastic performance in the quarter. Second, the company's core U.S. consumer segment posted solid sales growth.

Scotts Miracle-Gro CEO Jim Hagedorn said that Hawthorne experienced strong growth in Florida, Ohio, Michigan, and Massachusetts. This is really encouraging because the legal cannabis markets in these states are still in their early stages. Three of these states should have annual cannabis markets of more than $1 billion by 2023.

It's also great news that Hawthorne's sales in California are up 15% year to date. The state is the largest market for Hawthorne but had a bumpy start to its legal recreational marijuana market last year.

Consumer lawn and garden products remain the biggest moneymaker for Scotts, though. Sales for its U.S. consumer segment increased by 10% year over year, driven partially by the launches of new organic products.

Now what

The fundamentals now appear to be in place for Scotts Miracle-Gro to keep the momentum going. Scotts expects full-year fiscal 2019 revenue growth of 16% to 17%, with Hawthorne's sales jumping around 90% and U.S. consumer segment sales increasing 6% to 7%. As the cannabis markets mature in some U.S. states and other states move to legalize recreational cannabis, look for Hawthorne to fuel more growth for Scotts. 

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