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Why Scotts Miracle-Gro May See Its Margins Expand in 2017

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Margins expectations

The Scotts Miracle-Gro Company (SMG) earned a decent gross margin of 35.3% in 2016, which contracted slightly from 36.1% in 2015. The company’s EBITDA (earnings before interest, tax, depreciation, and amortization) margin also fell in the period, from 23.1% in 2015 to 21.1% in 2016.

Let’s look at what analysts expect for the company’s margins in the coming year.

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2017 estimates

For 2017, Wall Street analysts expect Scotts Miracle-Gro’s gross margin to expand back to 2015 levels at 36.1%. While its sales are expected to rise 6.4% in 2016, its cost of goods is expected to rise 5.5% year-over-year (or YoY) in 2017. Thus, savings from its cost of production are expected to help its gross margin expand in 2017.

However, these savings are expected to be offset by operating expenses, with the company’s EBITDA margin expected to stay at 18.2% of its total sales.

Wall Street analysts also expect savings in the cost of production for Central Garden & Pet Company (CENT) and Spectrum Brands Holdings (SPB). CENT’s gross margin is expected to expand from 30.2% to 30.5%. SPB’s gross margin is expected to expand from 38.1% to 38.4%.

Like Scotts Miracle-Gro, Spectrum Brands’ EBITDA margin is expected to contract to 15.3% from 15.4% YoY.

With retail business (XRT) (AGU), when costs are expected to fall, margins usually expand, as companies usually don’t lower their selling prices.

Next, we’ll discuss SMG’s earnings growth.

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