What happened
Scotts Miracle-Gro (SMG -0.09%) shareholders underperformed the market through Thursday trading this week. The lawn care and hydroponic growing specialist was down 11% compared to a 1.4% drop in the wider market, according to data provided by S&P Global Market Intelligence.
The move contributed to a tough year for the stock, which is down over 70% so far in 2022. It was sparked by growing concerns about Scotts' ability to turn its business around in today's weakening demand environment.
So what
The stock price drop wasn't driven by specific news out of the company. Instead, shares fell along with the wider market. Investors this week became more concerned that a recession is on the way and that inflation and rising interest rates will continue impacting consumers into late 2022.
These factors showed up in Scotts' last earnings report, which in early August showed sharp decreases in both sales and profitability. Management said at the time that its retailing partners were pulling back on purchases to keep inventory light amid slowing demand for home lawn care.
Investors are worried that these challenges have intensified in recent weeks and might further complicate Scotts' rebound initiatives.
Now what
The company will update investors on that rebound project, and its latest demand trends, in early November. That fiscal fourth-quarter earnings report will also contain important details about management's forecast for the new fiscal year ahead.
It is possible that Scotts will endure just a modest disruption to its sales trends, along with a quick return to profitability. However, the risk of a deeper earnings slump is rising along with the wider risk of a recession on the way. In that context, it makes sense that investors would avoid Scotts' stock during this week's market turbulence.
