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Scotts Miracle-Gro Over-Fertilized

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  • After a disappointing 2018, Scotts Miracle-Gro looks to shine a more positive light on the upcoming fiscal year.
  • Q1 revenue beat by $11M but adjusted EPS fell short $0.14.
  • The last few years of funding Hawthorne's dubious acquisitions has left the balance sheet in need of care.
  • The company is still expensive, but I am no longer short the name.

Scotts Miracle-Gro (NYSE:SMG) reported Q1 results Wednesday morning and held a conference call. Revenue beat by $10.8M while EPS fell short by $0.14. I share my thoughts on the press release & conference call.

Last year was bad, and management agrees. CEO Jim Hagedorn "see[s] 2019 as a bounce back year for Scotts Miracle-Gro and look[s] forward to proving it."

With the asset write-downs and legal charges incurred over the last 2 quarters, management had set the stage for some positive news. You can read about the company's most recent Q4 and FY 2018 here.


Company-wide sales were up about $76.6M (almost 35%) for the quarter, but $72M came directly from Sunlight Supply which wasn't on the books last year. Encouragingly, U.S. Consumer segment was up almost 9% from last year's Q1. Still, this calculation benefits from a very favorable comp. Mr. Hagedorn stated in his opening remarks, "the U.S. Consumer segment to start the 2018 season was historically bad." Management warned not to extrapolate too much from Q1, which is always the weakest quarter due to seasonality. Still, CFO Randy Coleman said, "we now believe our first half net sales for U.S. consumer will approach $100 million higher than a year ago." Unfortunately he went on to say the increase was only a shift in timing and guidance was unchanged ...

segment salesauthor

The marijuana related businesses housed under Hawthorne segment disappointed again. Sales for the segment declined $11.4M (about 7.5%) sequentially. If we back out the $72M brought in by the recently acquired Sunlight Supply, Mr. Hagedorn submitted "comparable sales in Q1 declined by less than 10%."

This is unfolding amongst the backdrop of explosive growth in the marijuana sector. Jurisdictions worldwide are passing laws legalizing medical and recreational cannabis. The company has spent hundreds of millions

This article was written by

Paid Observer profile picture
Fun fact: there are more potential moves in a game of chess than there are electrons in the observable universe. Good thing you don't need to analyze them all (or even a fraction) to win. If you follow a few elemental tenets you could eliminate about half the number of electrons in the observable universe worth of unfortunate board positions. Not bad...

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Comments (6)

FROGBERT profile picture
Consumer Roundup represents ~10% of profit and the lawsuit will be a major headwind. Costco dropped it..other retailers are probably considering similar moves. This was on my watch-list as a play on weed legalization but the value - potential didn't add up so I went with the MJ ETF to play the trend.
Alan Brochstein, CFA profile picture
Nice write-up! I spent a lot of time reviewing the filings and conference calls of the last couple of quarters today. I too have been negative on the name. Not sure a bearish bet will pay off at this point.
Jimmy Hagedorn is a charismatic and a passionate leader. But no Warren Buffett when it comes to making acquisitions. Hard to think of an analogous success story where an 800 pound gorilla like SMG buys a group of manufacturers (in cannibis) and then acquires a distributor (Sunrise) and then fires competing distributors (before they drop SMG's cannibis products). Complicated and confusing.
i bought a good amount at a price higher than i care to admit and have been periodically layering down. i am long, so the lower price is fine to reinvest the dividends for now and revisit as things move forward. I'm hoping you're right and they're able to right the ship this year or else i will have a big loser on my hands lol
Paid Observer profile picture
Watch the leverage ratio for cues. I want to see us approaching 4.0x by end of year. Management stated this as a clear goal. If they fail here, that would be a bad sign regarding the new business's cash generating ability.
buying all that hyrdoponic crap without a plan for how to manage it was a serious blunder and pissed me off lol. thanks!
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