Tue. Dec 7th, 2021

The shares of Scotts Miracle-Gro Co. sank on Wednesday to a nine-month low as the gardening and gardening firm exceeded earnings expectations for the third fiscal quarter, but did not raise its full-year outlook as it was expected to inflationary pressures erode profits.

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

“I think it’s bad for the United States.”

– Scotts Miracle-Gro CEO Jim Hagedorn

Hagedorn expressed his frustration and said that while the company has already raised prices and is “almost certain” to raise them again to help alleviate profits as costs rise, the company “tried be responsible “for prices, unlike others.

“I’m sensitive to the fact that I don’t understand why some people are priced as they are, i.e. commodities, where they do it because they can,” Hagedorn said in a conference call to discuss quarterly results with analysts. “And I think he’s, to some extent, irresponsible.”

Read more about inflation: The MarketWatch columns The Fed and Economic Report

SMG shares,
fell 6.9% to $ 164.56, the lowest close since Nov. 11, 2020. It was also the first time that shares sold on the day were reported in three years, achieving a 11-quarter streak of optimistic reports.

The company reported before the opening bell that net income for the quarter through July 3 rose to $ 225.9 million, or $ 3.94 per share, from $ 202. $ 8 million, or $ 3.55 per share, in the same period a year ago. Excluding non-recurring items, adjusted earnings per share were $ 3.98, $ 3.80 last year and well above the $ 3.52 FactSet consensus.

Sales grew 7.8% to $ 1.61 billion, surpassing the $ 1.50 billion FactSet consensus.

But as the cost of sales rose 16.8%, gross profit fell 6.1%, to reduce the gross margin rate by 540 basis points (5.4 percentage points) to 30, 7%.

FactSet, MarketWatch

Chief Financial Officer Cory Miller said at the conference call that he expects “another significant decline” in the gross margin rate in the fourth quarter, as demand has kept commodity prices “stubbornly high” and that now price pressures are being observed on grass seed and peat bog.

Thus, while the company exceeded third-quarter EPS expectations by a wide margin, the fiscal-adjusted EPS guidance range for 2021 was left between $ 9.00 and $ 9.30, as it is now ‘expects the full-year gross margin rate to decrease by 250 to 275 basis points, compared to the previous guidelines for a decrease of 175 to 225 basis points.

CEO Hagedorn said that while history has suggested the business is “very sticky” as it is less affected by macroeconomic pressures, “we’re probably not completely immune” to a broad rise in consumer prices. :

“[I]If prices rise in double digits, do I think demand could be affected? I think less than other people, but I think the answer is probably yes.

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

After shooting an annual record of 87.6% in 2020, as the company benefited from the trend of staying at home due to the COVID-19 pandemic, shares have fallen 17.4% so far of the year. In comparison, the XLP fund traded by SPDR Consumer Staples Select Sector
so far it has gained 4.7% and the S&P 500 SPX index,
has advanced 17.2%.

Read on too: Home improvement projects are underway during COVID-19 and millennials are spending more, Bank of America says.

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