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Scotts Miracle-Gro Wows Investors With Its Q2 Results

By Keith Speights - May 5, 2021 at 2:29PM

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The company's consumer lawn and garden and cannabis-related businesses continue to deliver solid growth.

Scotts Miracle-Gro (SMG 2.50%) gave investors reasons to be confident about its prospects this year at the company's investor day event in early April. It raised its full-year guidance and said that sales for its lawn and garden products and Hawthorne businesses were booming.

The company wasn't exaggerating. Scotts announced its fiscal 2021 second-quarter results before the market opened on Wednesday. Here are the highlights from its Q2 update. 

Marijuana plants on top of coins in an ascending manner

Image source: Getty Images.

By the numbers

Scotts Miracle-Gro reported revenue in the second quarter of $1.83 billion, a 32% year-over-year jump. This result topped the average analysts' revenue estimate of $1.73 billion.

The company announced net income in the second quarter of $310.2 million, or $5.44 per share, based on generally accepted accounting principles (GAAP). In the prior-year period, Scotts posted GAAP earnings of $252.4 million, or $4.43 per share.

Scotts recorded non-GAAP (adjusted) earnings in Q2 of $5.64 per share, up 25% year over year. The consensus Wall Street estimate was for adjusted earnings of $5.42 per share.

Behind the numbers

Both of Scotts Miracle-Gro's business segments delivered solid growth in the second quarter. U.S. consumer segment sales jumped 23% year over year to $1.37 billion. Hawthorne segment sales skyrocketed 66% to $363.8 million.

CEO Jim Hagedorn said, "The record level of consumer demand we have seen for our lawn and garden products is greater than we expected." He added, "Consumers told us entering the season that they intended to stay engaged with lawn and garden and, so far, that is exactly what they are doing."

Hawthorne ranks as a leading supplier of hydroponics and other products to the cannabis industry. The segment benefited from growth in states with already-established cannabis markets, as well as new markets opening up thanks to marijuana legalization efforts. Hagedorn noted that Q2 was the fifth consecutive quarter for Hawthorne to generate sales growth of more than 60%.

There was one asterisk with Scotts' great Q2 results. The company's fiscal Q2 had six extra days compared to the prior-year period. This added roughly $122.5 million in sales for the lawn and garden business.

Probably the only negative for Scotts Miracle-Gro in its fiscal second quarter was lower gross margins. The company reported a gross margin of 36% on a GAAP basis and 36.6% on a non-GAAP basis in Q2, down from 39.8% and 40%, respectively, in the same period of 2020. This decline was largely due to growth for the lower-margin Hawthorne segment.

Looking ahead

Scotts Miracle-Gro raised its full-year guidance for its Hawthorne segment. It now expects the segment's sales to increase between 30% and 40%, up from its previous outlook of growth of close to 30%. The company reaffirmed its guidance for its U.S. consumer segment of 4% to 6% sales growth in fiscal 2021. However, Scotts also thinks that there is upside potential with sales growth currently trending at a higher level.

Hagedorn stated, "We continue to see tremendous momentum in all aspects of the business, and we are extremely optimistic in our ability to drive another year of record results." With this momentum combined with strong growth prospects, Scotts appears to be one of the top cannabis stocks to buy and hold for the next 10 years.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Scotts Miracle-Gro. The Motley Fool has a disclosure policy.

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