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The Scotts Miracle-Gro Company SMG has announced the transfer of its fully-owned subsidiary, The Hawthorne Collective, Inc., to an independent partner.
The Hawthorne Collective, founded in 2021, was created to invest in areas in the cannabis industry that fall outside the scope of SMG's other subsidiary, Hawthorne Gardening Company, which provides cultivation products such as lighting, nutrients and other supplies to cannabis growers and hydroponic cultivators. The Hawthorne Collective owns a stake in Fluent, a vertically integrated cannabis firm with operations and licenses in Florida, Pennsylvania, Texas and New York.
The transfer of The Hawthorne Collective marks the first phase in the company’s broader strategy to separate its cannabis-adjacent subsidiaries into an independent entity. The move aligns with the company's renewed emphasis on its primary lawn and garden operations. This is expected to lessen the influence of the cannabis industry's volatility on the company's stock performance and open the door to significant and immediate shareholder value creation by enabling greater investment in its core consumer business.
Under the terms of the agreement, ScottsMiracle-Gro transferred The Hawthorne Collective in exchange for an interest-bearing promissory note. The company retains the option to repurchase The Hawthorne Collective or its assets if cannabis legalization and other measures to benefit the business are cleared at the federal level.
Shares of Scotts Miracle-Gro have lost 27.4% in the past year compared with a 9.6% decline of the industry.
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The company, on its fiscal first-quarter call, reaffirmed full-year sales, adjusted gross margin and adjusted EBITDA guidance, which it stated last quarter, and reduced interest expense guidance. U.S. consumer net sales are projected to experience low single-digit growth, excluding non-repeat sales for AeroGarden and bulk raw material sales. Hawthorne's net sales are expected to decrease by mid-single digits. SMG expects an adjusted gross margin of around 30% for fiscal 2025. Adjusted EBITDA is projected to range from $570 million to $590 million.
The Scotts Miracle-Gro Company Price and Consensus
The Scotts Miracle-Gro Company price-consensus-chart | The Scotts Miracle-Gro Company Quote
SMG’s Rank & Key Picks
SMG currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the basic materials space include Carpenter Technology Corporation CRS, Idaho Strategic Resources, Inc. IDR and ArcelorMittal S.A. MT
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The Zacks Consensus Estimate for Idaho Strategic Resources’ current-year earnings is pegged at 78 cents. IDR, carrying a Zacks Rank #2, surpassed the Zacks Consensus Estimate in three of the trailing four quarters, while missing once, with an average earnings surprise of 77.5%. The company's shares have rallied 80.4% in the past year.
ArcelorMittal, which currently carries a Zacks Rank #2, beat the consensus estimate in three of the trailing four quarters while missing once. In this time frame, it delivered an earnings surprise of roughly 4.1%, on average.