The Scotts Miracle-Gro Company (SMG) Bundle
Understanding The Scotts Miracle-Gro Company (SMG) Revenue Streams
Understanding Scotts Miracle-Gro Company’s Revenue Streams
As of the fiscal year ended September 30, 2024, the total net sales for the company were approximately $3.6 billion, showing a marginal increase of less than 1% compared to the previous year, which reported $3.55 billion in net sales.
Revenue Sources Breakdown
The revenue streams can be categorized into three primary segments:
- U.S. Consumer: Contributed $3.0 billion, representing a 6% increase from $2.84 billion in the prior year.
- Hawthorne: This segment saw a significant decline, generating $294.7 million, down 37% from $467.3 million.
- Other: This segment, primarily consisting of the Canadian consumer lawn and garden business, experienced a slight increase to $244.3 million, a 2% rise from $240.3 million.
| Segment | Net Sales FY 2024 | Net Sales FY 2023 | % Change |
|---|---|---|---|
| U.S. Consumer | $3.0 billion | $2.84 billion | 6% |
| Hawthorne | $294.7 million | $467.3 million | -37% |
| Other | $244.3 million | $240.3 million | 2% |
| Total | $3.6 billion | $3.55 billion | ~1% |
Year-over-Year Revenue Growth Rate
The year-over-year growth rate for the overall company’s revenue was approximately 0.5%. The U.S. Consumer segment showed resilience with a 6% growth rate, while the Hawthorne segment faced challenges with a 37% decline.
Contribution of Different Business Segments to Overall Revenue
The U.S. Consumer segment was the dominant contributor, making up approximately 83% of total revenue. Conversely, the Hawthorne segment's contribution dropped to about 8% of total revenue, reflecting a substantial shift in revenue dynamics.
Significant Changes in Revenue Streams
Notably, the Hawthorne segment's revenue decline was attributed to the discontinuation of its third-party distribution business, impacting sales significantly. The U.S. Consumer segment benefited from increased shelf space and promotional activities, contributing to its growth amid a challenging market environment.
In summary, the company's revenue analysis for fiscal 2024 highlights a stable overall performance with significant variances across its segments, particularly the challenges faced by the Hawthorne segment and the growth in the U.S. Consumer segment.
A Deep Dive into The Scotts Miracle-Gro Company (SMG) Profitability
A Deep Dive into Scotts Miracle-Gro Company's Profitability
Gross Profit Margin: For the fiscal year ended September 30, 2024, the company reported a GAAP gross margin of 23.9% and a non-GAAP adjusted gross margin of 26.3%. This is an improvement from the previous year's gross margins of 18.5% and 23.7%, respectively.
Operating Profit Margin: The income from operations for the fiscal year was reported at $208.8 million, yielding an operating profit margin of 5.9%. This represents a significant recovery from a loss of 4.9% in the previous year.
Net Profit Margin: The company experienced a GAAP net loss of $34.9 million for the fiscal year, translating to a net loss margin of -1%. This is an improvement from a net loss of $380.1 million the previous year.
Trends in Profitability Over Time
The table below summarizes the profitability trends over the past two fiscal years:
| Metric | FY 2024 | FY 2023 |
|---|---|---|
| Gross Margin (GAAP) | 23.9% | 18.5% |
| Gross Margin (Non-GAAP) | 26.3% | 23.7% |
| Operating Income | $208.8 million | ($174.4 million) |
| Operating Margin | 5.9% | -4.9% |
| Net Income (Loss) | ($34.9 million) | ($380.1 million) |
| Net Margin | -1% | -10.7% |
Comparison of Profitability Ratios with Industry Averages
The industry average gross margin for similar companies in the lawn and garden sector is approximately 30%. The company's gross margin of 23.9% signifies that it is below the industry average, indicating potential room for improvement.
Operating margins in the industry typically range from 7% to 10%, placing the company's operating margin of 5.9% slightly below the average.
Analysis of Operational Efficiency
The company has implemented various cost management strategies that resulted in a 9% decrease in selling, general and administrative expenses (SG&A) to $559 million, representing 15.7% of net sales. This follows a previous year's SG&A of $551.3 million.
Additionally, the company achieved an adjusted EBITDA of $510.1 million for FY 2024, a 14% increase from $446.9 million in FY 2023. The debt-to-EBITDA ratio at the end of FY 2024 was reported at 4.86 times.
Debt vs. Equity: How The Scotts Miracle-Gro Company (SMG) Finances Its Growth
Debt vs. Equity: How Scotts Miracle-Gro Company Finances Its Growth
As of September 30, 2024, the total liabilities of the company amounted to $3,262.5 million, which includes $2,174.2 million in long-term debt and $52.6 million in current portion of debt.
The debt-to-equity ratio stands at approximately -8.35, calculated using total liabilities of $3,262.5 million and equity (deficit) of -$390.6 million.
Recent Debt Issuances and Credit Ratings
In the fiscal year 2024, the company reported an interest expense of $158.8 million, which decreased by $19.3 million due to a lower debt balance. The debt-to-EBITDA ratio at the end of the fiscal year was 4.86 times, which is below the maximum covenant limit of 6.0 times.
Balancing Debt Financing and Equity Funding
The company has strategically utilized its debt financing to support growth while managing its equity funding. The net cash provided by operating activities for fiscal 2024 was $667.5 million, resulting in a free cash flow of $583.5 million. This indicates a strong capacity to meet its debt obligations and reinvest in business operations.
| Debt Type | Amount (in millions) |
|---|---|
| Current Portion of Debt | $52.6 |
| Long-Term Debt | $2,174.2 |
| Total Liabilities | $3,262.5 |
| Equity (Deficit) | -$390.6 |
| Debt-to-Equity Ratio | -8.35 |
| Interest Expense (FY 2024) | $158.8 |
| Debt-to-EBITDA Ratio | 4.86 |
| Free Cash Flow (FY 2024) | $583.5 |
Assessing The Scotts Miracle-Gro Company (SMG) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The current ratio for the company as of September 30, 2024, is 1.31, calculated from current assets of $980.4 million divided by current liabilities of $750.3 million. The quick ratio is 0.55, reflecting cash and cash equivalents of $71.6 million, accounts receivable of $176.8 million, and inventories of $587.5 million.
Analysis of Working Capital Trends
The working capital position has improved from the previous year. As of September 30, 2023, working capital was $624.1 million, compared to $230.1 million in 2024, indicating an increase in liquidity. The reduction in inventories from $880.3 million to $587.5 million has positively impacted working capital.
Cash Flow Statements Overview
For the fiscal year ended September 30, 2024, the cash flow from operating activities was $667.5 million, up from $531.0 million in the prior year. The investing activities resulted in a cash outflow of $100.4 million, while financing activities used $527.9 million.
| Cash Flow Activity | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Cash flow from operating activities | $667.5 | $531.0 |
| Cash flow from investing activities | ($100.4) | ($65.7) |
| Cash flow from financing activities | ($527.9) | ($520.1) |
Potential Liquidity Concerns or Strengths
Despite improvements in working capital and cash flow from operations, potential liquidity concerns remain due to long-term debt of $2,174.2 million, which could limit financial flexibility. However, the free cash flow for fiscal 2024 was $583.5 million, reflecting effective cash management and operational efficiencies, providing a buffer against liquidity risks.
The company’s debt-to-EBITDA ratio stands at 4.86, indicating that while there is a significant amount of leverage, it remains below covenant limits, suggesting manageable debt levels relative to earnings before interest, taxes, depreciation, and amortization.
Is The Scotts Miracle-Gro Company (SMG) Overvalued or Undervalued?
Valuation Analysis
As of 2024, the valuation metrics for the company indicate a mixed assessment of its financial health. The key ratios to consider are the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA). Below is a summary of these ratios:
| Valuation Metric | Value |
|---|---|
| Price-to-Earnings (P/E) Ratio | N/A (Net Loss) |
| Price-to-Book (P/B) Ratio | -9.2 |
| Enterprise Value-to-EBITDA (EV/EBITDA) | 4.3 |
The stock price trends over the last 12 months have shown volatility, with significant fluctuations influenced by the company's restructuring efforts and market conditions. As of September 30, 2024, the stock price was approximately $18.56, reflecting a decrease from a high of $34.52 earlier in the year.
In terms of dividend yield, the company has suspended its dividend payments as of the last fiscal year, resulting in a yield of 0%. The payout ratio is similarly 0% due to the net losses reported.
Analyst consensus on the stock valuation currently stands at a mix of Hold ratings with a few Sell recommendations. The average target price from analysts is around $20.00, suggesting a potential upside based on current trading levels.
To provide a clearer picture of the financial situation, the following table summarizes key financial performance indicators:
| Indicator | Fiscal Year 2024 | Fiscal Year 2023 |
|---|---|---|
| Net Sales (in billions) | $3.55 | $3.55 |
| GAAP Net Loss (in millions) | $34.9 | $380.1 |
| Non-GAAP Adjusted EBITDA (in millions) | $510.1 | $446.9 |
| Free Cash Flow (in millions) | $583.5 | $438.2 |
The company reported a GAAP net loss of $34.9 million for the fiscal year ended September 30, 2024, an improvement from a loss of $380.1 million in the previous year. This reflects a significant turnaround in operational efficiency and financial management.
Overall, these metrics and trends provide investors with crucial insights into whether the company is overvalued or undervalued in the current market landscape.
Key Risks Facing The Scotts Miracle-Gro Company (SMG)
Key Risks Facing Scotts Miracle-Gro Company
The Scotts Miracle-Gro Company faces a variety of internal and external risks that could impact its financial health in 2024. These risks include heightened competition within the industry, regulatory changes, fluctuations in market conditions, and operational challenges.
Industry Competition
The competitive landscape in the consumer lawn and garden market is intense, with numerous players vying for market share. The company has reported a significant sales increase in its U.S. Consumer segment, which rose by 54% to $309.7 million in the fourth quarter of 2024, compared to $201.0 million in the previous year. However, the Hawthorne segment experienced a 46% decline in sales, dropping to $80.5 million from $149.7 million. This disparity highlights the vulnerability of the company to shifts in consumer preferences and competitive pressures.
Regulatory Changes
Compliance with environmental regulations and public health standards is paramount. Changes in these regulations could lead to increased operational costs or restrictions on product offerings. The company may face challenges in adapting to new regulations, which could impact profitability and market access.
Market Conditions
Market conditions are subject to fluctuations due to economic factors such as consumer spending, inflation, and raw material costs. The company reported a net loss of $34.9 million for the fiscal year 2024, a significant recovery from a loss of $380.1 million in fiscal 2023. However, ongoing economic volatility could pose risks to future sales growth and profit margins.
Operational Risks
- Disruptions in supply chain or production facilities could hinder the company’s ability to meet consumer demand, affecting revenue generation.
- Inventory management is critical; underestimating demand could lead to excess inventory, while overestimating demand could result in stockouts.
Financial Risks
The company’s indebtedness could limit financial flexibility. As of the end of fiscal 2024, the debt-to-EBITDA ratio stood at 4.86 times, which is below the covenant maximum of 6.0 times. However, high leverage could constrain future capital investments and operational initiatives.
Mitigation Strategies
The company has initiated several strategies to mitigate these risks:
- Cost-reduction initiatives have been implemented, resulting in a 9% decrease in SG&A expenses from the previous year.
- Investments in marketing and innovation are aimed at enhancing brand strength and market positioning.
- Management is focused on optimizing inventory levels, achieving a sustainable level below $600 million.
Recent Financial Performance
| Metric | Q4 2024 | Q4 2023 | Fiscal Year 2024 | Fiscal Year 2023 |
|---|---|---|---|---|
| Net Sales | $414.7 million | $374.5 million | $3.6 billion | $3.6 billion |
| Gross Margin | -7.1% | -15.2% | 23.9% | 18.5% |
| Net Loss | $244.0 million | $468.4 million | $34.9 million | $380.1 million |
| Adjusted EBITDA | -$97.2 million | -$106.1 million | $510.1 million | $446.9 million |
The financial performance metrics highlight the challenges and recovery efforts made by the company. The significant reduction in net loss and improvements in gross margin are indicative of a turnaround strategy that may position the company better for future growth.
Future Growth Prospects for The Scotts Miracle-Gro Company (SMG)
Future Growth Prospects for Scotts Miracle-Gro Company
Key Growth Drivers
The company is poised for growth through several key drivers:
- Product Innovations: Continuous investment in new product lines aims to capture market share in the lawn and garden sector.
- Market Expansions: Plans to increase presence in both domestic and international markets, particularly in hydroponics and indoor gardening.
- Acquisitions: Strategic acquisitions to enhance product offerings and market penetration.
Future Revenue Growth Projections and Earnings Estimates
For fiscal year 2025, revenue projections show an expected increase in net sales driven by:
- U.S. Consumer Segment: Anticipated sales growth of 6% to reach approximately $3.2 billion.
- Hawthorne Segment: Expected recovery from a 37% decline in 2024, with projections of a gradual increase in sales.
The overall revenue growth is projected to reach $3.8 billion by the end of fiscal 2025, following a flat performance in 2024 with net sales of $3.6 billion.
Strategic Initiatives or Partnerships
Recent strategic initiatives include:
- Marketing Investments: An incremental investment of at least $40 million in brand marketing for fiscal 2025.
- Innovation in Hydroponics: Focus on expanding product lines in the indoor gardening market to meet growing consumer demand.
Competitive Advantages
The company holds several competitive advantages that position it favorably for growth:
- Brand Recognition: Strong market presence with well-known brands such as Scotts, Miracle-Gro, and Ortho, leading to high consumer trust and loyalty.
- Operational Efficiency: Cost-reduction initiatives have improved operating margins, with a gross margin rate of 23.9% for fiscal 2024.
- Strong Cash Flow: Achieved a free cash flow of $583.5 million in fiscal 2024, providing significant flexibility for reinvestment.
Financial Summary of Growth Opportunities
| Metric | Fiscal 2024 | Projected Fiscal 2025 |
|---|---|---|
| Net Sales | $3.6 billion | $3.8 billion |
| U.S. Consumer Segment Sales Growth | 6% | 6% |
| Hawthorne Segment Sales Decline | -37% | Projected recovery |
| Free Cash Flow | $583.5 million | Projected increase |
| Marketing Investment | - | $40 million |
Through these strategic initiatives and competitive advantages, the company aims to solidify its market position and drive future growth in a challenging economic environment.
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Updated on 16 Nov 2024
Resources:
- The Scotts Miracle-Gro Company (SMG) Financial Statements – Access the full quarterly financial statements for Q4 2024 to get an in-depth view of The Scotts Miracle-Gro Company (SMG)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View The Scotts Miracle-Gro Company (SMG)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.