Shares of Scotts Miracle-Gro (NYSE: SMG) jumped nearly 14% last month, according to data from S&P Global Market Intelligence. The company reported fiscal fourth-quarter and full-year 2018 operating results. While the numbers reflected a trying year for the business -- which was expected -- the consumer garden and hydroponics leader excited investors by saying it expects to return to growth in fiscal 2019.
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The numbers certainly put the struggles of the past year into context. In fiscal 2018, the business reported diluted EPS of $2.27 and adjusted EPS of $3.71 -- both the worst since 2015. The 1% revenue growth compared with the prior year was easily the worst year-over-year improvement on the top line in the past five years.
Scotts Miracle-Gro just couldn't catch a break in fiscal 2018. Its consumer segment, responsible for 79% of revenue and 99% of operating income, suffered right out of the gate because of lingering winter conditions that cut short the consumer gardening season. Its Hawthorne segment, which sells hydroponics equipment to the fledgling marijuana markets, reported an operating loss for the first time since 2015 and saw revenue fall 27% from the prior year when acquisitions are excluded.
But that's nothing a little optimistic guidance can't fix. Scotts Miracle-Gro said it's ready to put 2018 behind it and return to growth in the year ahead. For fiscal 2019, the business expects adjusted EPS of around $4.20, good for year-over-year growth of 13%, on revenue growth of at least 10%.
Individual investors are eagerly looking forward to seeing Scotts Miracle-Gro deliver on its full-year guidance and hoping last year was simply an exception to an impressive track record of growth. That could be true, but the incredible drop in performance at Hawthorne in fiscal 2018 is so unusual it can't be overlooked. It's possible there are bigger issues investors don't know about. Similarly, as last year demonstrated, a lot of numbers from initial guidance can change between now and the end of winter. I still think the company deserves the benefit of the doubt, but investors need to remain vigilant.
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