Why Scotts Miracle-Gro's (NYSE:SMG) Earnings Are Better Than They Seem

Shareholders appeared to be happy with The Scotts Miracle-Gro Company's (NYSE:SMG) solid earnings report last week. This reaction by the market reaction is understandable when looking at headline profits and we have found some further encouraging factors.

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How Do Unusual Items Influence Profit?

For anyone who wants to understand Scotts Miracle-Gro's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$84m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect Scotts Miracle-Gro to produce a higher profit next year, all else being equal.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Scotts Miracle-Gro's Profit Performance

Because unusual items detracted from Scotts Miracle-Gro's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Scotts Miracle-Gro's earnings potential is at least as good as it seems, and maybe even better! And it's also positive that the company showed enough improvement to book a profit this year, after losing money last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into Scotts Miracle-Gro, you'd also look into what risks it is currently facing. To that end, you should learn about the 3 warning signs we've spotted with Scotts Miracle-Gro (including 1 which shouldn't be ignored).

This note has only looked at a single factor that sheds light on the nature of Scotts Miracle-Gro's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.