Rob Lauzon discusses Scotts Miracle-Gro
Scotts Miracle-Gro Co. surged to a record after raising its profit forecast and reporting booming sales from a marijuana business that’s spreading its roots from California into the Midwest and East Coast.
Changing laws have spurred new markets in Ohio, Michigan, Florida and Massachusetts, the gardening-products maker said in a statement Wednesday as it reported earnings. That’s bolstering a robust business in California for the company’s pot-focused Hawthorne Gardening subsidiary.
Hawthorne, which supplies specialty fertilizers and hydroponics equipment used for growing marijuana, posted its third straight quarter of rising sales. That’s reversing a slump from last year, which was stoked by concerns that states weren’t acting as quickly as expected to loosen laws restricting marijuana crops and sales.
“We see today’s results as a validation of the strategy we initially laid out in 2015,” Scotts Chief Executive Officer Jim Hagedorn said on a conference call. “It’s confirmation that the challenges that drove our conversation on this call a year ago are now in the rear-view mirror.”
The shares rose 8.6 per cent to US$112.16 at 10:25 a.m. in New York, after advancing as much as 9.5 per cent to a record intraday high. Scotts rallied 68 per cent this year through Tuesday, largely on renewed optimism about Hawthorne’s future.
Buoyed by the strong momentum in marijuana-focused sales, Scotts raised its 2019 forecast for both sales and profit. It now expects a 90 per cent rise in sales at its pot business, up from a June outlook of 80 per cent. That’s expected to lift total revenue as much as 17 per cent.
The company predicted adjusted earnings for the fiscal year of US$4.35 to US$4.50 a share, compared with the US$4.20 to US$4.40 it projected earlier.
Scotts was one of the first public companies to enter the marijuana business when it purchased a hydroponics supplier in 2015. Performance has been volatile since then. After sales were slow to take off in California’s highly regulated legal marijuana market, Scotts cut its sales forecast in January 2018, which kicked off a 43 per cent sell-off for the year.
Still, the company doubled down with acquisitions and now claims to be the largest hydroponics supplier in North America. In the quarter ending June 29, Hawthorne’s sales more than doubled, bolstered by the purchase of a major hydroponics distributor. Even after adjusting for the effects of the acquisition, sales climbed 49 per cent.
“It’s maybe taking a little longer than people thought at first, but Hawthorne is the best positioned company to capitalize on increasing market size,” Seth Goldstein, an analyst with Morningstar, said ahead of the earnings release. “So far, the bet is paying off.”
Scotts’ performance is an indicator of the changing landscape of legal marijuana in the U.S. Michigan and Massachusetts are among the latest states to make recreational use legal, and Florida legalized medical marijuana for the first time this year. Nearly 25 per cent of the U.S. population live in the 10 states where recreational use is now legal.
Adjusted earnings rose to US$3.11 a share in the fiscal third quarter, Scotts said. That surpassed the highest analyst estimate compiled by Bloomberg. Sales climbed 18 per cent to US$1.17 billion in revenue, also beating the highest estimate.
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