Scotts Miracle-Gro's SMG fourth-quarter results support our thesis that its solid reputation and dominance in the lawn and garden categories will enable the firm to drive sustainable top-line growth. Results were in line with our expectations, and we are maintaining our fair value estimate. During the quarter, strong performance in the consumer segment (78% of total revenue) more than offset sales declines in the professional and lawn-service categories. Excluding foreign currency translations, the consumer business grew just north of 12%, driven by a 7% price increase and growth in unit volume. In addition to stepped-up marketing activities, Scotts also benefited from strong support by its retail customers to drive store traffic, reflecting tremendous strength in its brand names. In contrast, revenue from the professional segment decreased 6%, as commercial growers reduced or delayed fertilizer purchases while they struggle to navigate the weak economic environment. The more discretionary lawn-service segment suffered a 10% revenue decline during the quarter. Over the next year, we anticipate that the consumer business will continue to be a growth driver and expect improvements in the professional segment as customers restock on fertilizer inventory.Excluding charges, the gross margin improved to 28.8% from 25.9% as a result of price increases, lower commodity costs, and supply-chain improvements during the quarter. However, we project that some of these benefits will begin to roll off over the next year as the firm has decided not to raise prices for 2010 shipments, given the tough retail environment. For the quarter, operating expenses as a percentage of sales were 32.8%, up from 29.0% in the year-ago quarter, largely because of incremental costs associated with incentive compensation and advertising expenses. Excluding charges, Scotts posted a $24 million operating loss, relative to the $16 million loss in the year-ago quarter.
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Analyst Notes
07-29-09 | 4:46PM Scotts Miracle-Gro Posts 3Q Results
07-29-09 | 10:03AM Scotts Miracle-Gro Reports Solid 3Q
07-13-09 | 1:22PM Scotts Closes Smith & Hawken
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