Trading On margin

Inflation is ‘bad for America,’ says Scotts Miracle-Gro CEO


Shares of Scotts Miracle-Gro Co. sank to a nine-month low on Wednesday as the gardening and lawn care company beat earnings expectations for the third fiscal quarter but did not raise its outlook for the whole year, because inflationary pressures were to erode profit.

Managing Director Jim Hagedorn said the cost pressures Scotts Miracle-Gro and other consumer companies are experiencing, which are “starting to feel relentless,” don’t just hurt profit margins:


“I think it’s bad for America.”


– Jim Hagedorn, CEO of Scotts Miracle-Gro

Hagedorn expressed frustration, saying that while the company has already raised prices and is “almost certain” to raise them again to help lessen the blow to profits as costs continue to rise, the company “tried to be responsible” when it came to the price, unlike the others.

“I’m sensitive to the fact that I don’t understand why some people price the way they are, ie the commodities, where they do because they can,” Hagedorn said during ‘a conference call to discuss quarterly results with analysts. . “And I think that is, to some extent, irresponsible.”

Learn more about inflation: MarketWatch’s The Fed and Economic Report columns

SMG stock,
-4.31%
fell 4.8% in afternoon trading, putting it on track for the lowest close since November 19, 2020. It would also mark the first time the stock was sold on the day. where earnings were reported in three years, breaking an 11-quarter streak of optimism. reports.

The company said ahead of the opening bell that its net income for the quarter ended July 3 was $ 225.9 million, or $ 3.94 per share, from $ 202. 8 million, or $ 3.55 per share, over the same period a year ago. Excluding one-time items, adjusted earnings per share stood at $ 3.98, down from $ 3.80 last year and well above the FactSet consensus of $ 3.52.

Sales rose 7.8% to $ 1.61 billion, beating the FactSet consensus of $ 1.50 billion.

But as cost of sales rose 16.8%, gross margin fell 6.1%, lowering the gross margin rate from 540 basis points (5.4 percentage points) to 30.7%.

FactSet, MarketWatch


CFO Cory Miller said on the conference call that he expects “another significant drop” in the gross margin rate in the fourth quarter as demand kept some commodity prices “stubbornly high” and price pressures are now seen in grass seed and sphagnum peat moss.

So even though the company significantly exceeded expectations for third quarter EPS, the range of adjusted EPS guidance for fiscal 2021 was left at $ 9.00 to $ 9.30 as the gross margin rate for the full year is now expected to decline by 250 to 275 basis points, compared to the previous forecast for a decline of 175 to 225 basis points.

CEO Hagedorn said that while history has suggested the company is “very sticky” in that it is less affected by macroeconomic pressures, “we are probably not completely immune” ” a large increase in consumer prices:

“[I]If prices go up to double digits, do I think demand might be affected? I think less than the others, but I think the answer is probably yes.

Read more: Scotts Miracle-Gro’s first Super Bowl ad is part of effort to keep customer acquired during COVID.

After hitting an annual record of 87.6% in 2020, as the company benefited from the home care trend resulting from the COVID-19 pandemic, the stock has fallen 15.5% so far this year. In comparison, the SPDR Consumer Staples Select Sector XLP exchange-traded fund,
-1.17%
has gained 4.7% year-to-date and the S&P 500 SPX index,
-0.30%
increased by 17.3%.

Read also: Home improvement projects are underway during COVID-19, with millennials spending the most, according to Bank of America.


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