What happened

Actions in the distributor of lawn and garden products Scotts Miracle Gro (NYSE: SMG) fell 11.7% in June, according to data provided by S&P Global Market Intelligence. This decline may seem surprising since management improved its sales and profit forecast for the year 2021 at the start of the month. However, the market may have had its reasons for pessimism.

Management expects its annual sales to increase by 17% to 19%, and it has improved its sales forecast in its two business segments. Sales to U.S. consumers are now expected to rise 7% to 9%, up from the previous forecast range of 4% to 6%. It’s a sign that consumers are maintaining their interest in gardening even as social distancing measures are lifted. Additionally, Scotts Miracle-Gro’s Hawthorne segment, which sells nutrients, lighting and hydroponic equipment often used in cannabis production, is now expected to increase sales this year by 40% to 45%, compared to at the previous forecast range of 30% to 40%. %.

It was good news. However, the market apparently decided that it had already been priced into the stock price, and investors sold the stock lower in June.

So what

There are a few potential thunderstorm clouds on the horizon for Scotts Miracle-Gro. First, offering advice is one thing. Meeting him is another. One issue that could hamper the company on this front comes from the price hikes it intends to implement in August to offset increases in commodity costs. Fair enough, but consumers may react negatively to these price increases, which could raise questions about how it will perform in its 2022 fiscal year (Scott’s 2021 fiscal year ends September 30). .)

The second concern is that German giant Bayer will engage “immediately” with partners to discuss the future of glyphosate products in the US residential market. This includes Scotts, which is the marketer for Roundup herbicide containing Bayer’s glyphosate.

Some research has found evidence that glyphosate-based herbicides may be dangerous to human health, including a possible link to cancer. If Bayer ceases sales of Roundup to residential users, it will likely have a negative impact on Scotts sales.

Now what

Overall, the underlying growth conditions in the lawn & garden market and the cannabis market remain favorable for Scotts. Still, cautious investors may want to wait to decide on a stock purchase until we can see how consumers are taking the company’s pending price increases, and until Bayer says. clearly what his plans are for Roundup.