After peaking at nearly $250 per share in 2021, Scotts Miracle-Gro Co. (SMG) shares recently fell all the way to $61. The company has been punished by rising inflation, which has eroded profitability. However, value and income investors may want to take a closer look at this dividend stock now, suggests Bob Ciura, contributing editor at Sure Dividend.
SMG is one of the world’s leading marketers of branded consumer lawn and garden as well as hydroponic and indoor growing products. The company offers fertilizers, grass seed products, spreaders, outdoor cleaners, and many lawn-related weed, pest, and disease control products.
On Nov. 1, Scotts Miracle-Gro reported its Q4 2023 and full-year results for the period ending September 30, with numbers remaining rather underwhelming. The company recorded sales of $374.5 million during the quarter, a 24.1% decline compared to Q4 2022. The drop primarily stemmed from a 35% sales decline in the Hawthorne division, further compounded by a 3% decline in the sales at the US Consumer division. The decline in Hawthorne’s sales reflected the continued challenges in the hydroponic industry.
The company is currently being pressured by higher commodity prices, which have led to a significant margin decline despite multiple pricing actions. Moving into fiscal 2024, management expects an improvement in the company’s growth margin combined with tight control of SG&A, which should result in an operating income margin between 10.5% and 11%.
Analysts expect SMG’s earnings to rebound to $3.95 for fiscal 2026. This future earnings growth could meaningfully boost shareholder returns. The company’s future growth lies mostly in the industry’s organic growth, potential acquisitions, and the snowballing cannabis industry, which utilizes much of its products.
Moving forward, we expect the company to focus on executing its Springboard strategy to cut costs and get the business back on track for profitable growth. Starting off of a low base for fiscal 2024, we expect earnings per share growth of 16%, estimating the company will gradually regain its lost ground.
In the meantime, SMG recently had a high dividend yield of 4.3%. Scotts Miracle-Gro’s dividend should remain covered despite the recent challenges.
