What happened
Scotts Miracle-Gro (SMG -1.80%) investors lost ground to the market early Monday. The stock fell 6% by 11 a.m. ET, compared with a 0.7% decline in the S&P 500. That drop added to significant losses in 2022 for owners of the lawn care and hydroponic growing specialist. Shares are down over 70% so far this year.
Monday's decline came as investors grew more worried about the company's next earnings report, due out later this week.
So what
Scotts Miracle-Gro will announce its fiscal third-quarter results on Wednesday morning, and expectations are weak surrounding that report. Executives said back in early August that they were seeing major pullbacks in ordering volumes for key lawn care products as retailers trimmed their inventories.
This move pushed the consumer business down 14% in Q2. The Hawthorne segment, which caters to the cannabis industry, shrank even faster due to an inventory overhang there as well.
CEO Jim Hagedorn and his team have launched a restructuring plan aimed at getting sales growth back on track while cutting costs. But investors are bracing for more bad news first. Sales in this week's report should fall by 30%, according to Wall Street pros.
Now what
Scotts Miracle-Gro might begin demonstrating a path out of the current slump on Wednesday. Management hinted at some aggressive cost-cutting moves, for example, aimed at bringing the business back up to "an appropriate level of performance." Look for progress here showing up in the company's operating expenses, which need to come down drastically so that overall losses moderate.
The big question going forward is the timing of a rebound in demand from its customers in the retail and cannabis spaces. Shareholders are hoping that the current volume slump in both areas will lead to a better balance between supply and demand, eventually allowing Scotts Miracle-Gro to return to sales growth and profitability. But it might be a few quarters still before that rebound seems imminent.
