What happened
Scotts Miracle-Gro (SMG -0.13%) investors beat the market on Thursday. Shares rose 8% by 12:45 p.m. ET, compared to a 0.5% decline in the S&P 500. That boost wasn't enough to put shareholders back near positive territory for the year, however -- the lawn care and cannabis farming supply specialist is still down nearly 70% in 2022.
The rally came as Wall Street continued to digest this week's earnings report and management's updated restructuring plans.
So what
Scotts Miracle-Gro said on Wednesday that sales slumped 33% in the three-month period that ended in late September, reflecting major demand weakness in both of its key business segments. The consumer division declined 18%, and the Hawthorne segment, home to its cannabis farming supply products, dove 49%.
That weak demand news, along with management's projection of achieving modest adjusted earnings growth this year, sent shares tumbling and then rising on Wednesday. Today's spike is a continuation of that volatility.
Now what
Management yesterday sought to assure investors that they are taking aggressive actions aimed at protecting profitability. These include an "overhaul" of the Hawthorne segment, as well as debt repayments and companywide cost cuts.
Scotts Miracle-Gro did achieve the broad financial goals it set for fiscal Q4, including earnings and cash flow. "It was a good way to end the year," CEO Jim Hagedorn said in a conference call, "and I'd like to think that's just the start of a trend."
The stock's increase on Thursday reflects the judgement of some investors that the company will indeed show progress in the new fiscal year in making the company leaner even as debt levels decline.
Success on these points should pave the way for a stock price jump once the cannabis industry recovers. But investors might want to wait for more concrete signs of stabilizing sales trends before buying into this rebound story.
