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Why Scotts Miracle-Gro Surged 15% in May

What happened

Shares in lawn and garden care products company Scotts Miracle-Gro (NYSE: SMG) rose 14.9% in May, according to data provided by S&P Global Market Intelligence. The move was sparked by an impressive set of second-quarter earnings released in the first week of the month.

A cannabis plant. Image source: Getty Images.

Net sales rose 16% in the second quarter and 18% in the first half overall. While the whopping 51% sales increase at Hawthorne Gardening (a subsidiary of Scotts Miracle-Gro specializing in hydroponics products often used in cannabis production) in the first half caught the eye, the U.S. consumer segment (outdoor lawn and garden products) also rose 11% in the first half.

So what

The reason for the strong rise in both segments may well come down to the COVID-19-imposed quarantines causing people to take more interest in gardening at home and smoking pot. Of course, if these interests take hold, then demand may well prove sustainable over the long term.

In addition, management's positive commentary on current trading suggested the possibility that sales could surpass current full-year guidance for a 6% to 8% increase. As a reminder, Scotts' sales tend to be highly seasonal with around 75% of them coming in the second and third quarter.

As such, investors can look forward to an update in early June when management should give more color on the subject.

Now what

In the near term, investors will obviously be looking to see if the strong trading trends can continue. In addition, if the COVID-19 lockdowns really have led to a renewed interest in gardening and new interest in growing pot, then Scotts could see a longer-term benefit as well.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Scotts Miracle-Gro. The Motley Fool has a disclosure policy.


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