The Scotts Miracle-gro Company

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The Scotts Miracle-gro Company

The Scotts Miracle-Gro Company manufactures provides do-it-yourself lawn, garden and home protection products in North America, Europe, and Asia Pacific. Among their offerings are consumer fertilizers, plant foods, soils and mulches, pest controls, grass seed and bird food. The company’s principal consumer brands in North America are Scotts, Miracle-Gro, and Ortho. In addition, Scotts is Monsanto’s exclusive agent for the marketing and distribution of consumer Roundup.

The Scotts Miracle-gro Company

On January 27, 2012, Scotts Miracle-Gro agreed to plead guilty in federal court and pay $4.5 million in fines for selling 73 million units of bird seed from November 2005 to March 2008 that was coated with pesticide known to be deadly to birds and fish. Pesticides were added to protect the product from insects during storage, notwithstanding that Storcide II, one of the pesticides used, was clearly marked as extremely toxic to birds. Records show that its own experts warned of the risk in the summer and fall of 2007 and yet Scotts continued to sell the deadly product until March 2008. In 2008, Scotts Miracle-Gro also falsified pesticide registration numbers required by the U.S. Environmental Protection Agency on its products.

The Scotts Miracle-gro Company

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In the early 1960s, Scotts started selling a “program” of products for lawns; established special training classes to help retailers better assist customers in developing their lawns; received a U.S. Patent for Trionized bonding which produced fertilizers that delivered sustained feeding; and introduced a complete line of Turf Builder combination products. By the end of 1971, the company had added two new divisions to its portfolio: the Golf Course Division, developed to promote an exclusive line of professional products for golf courses and other large institutional accounts; and Scotts LawnService, established after Scotts found a significant “do-it-for-me” customer segmentation. The service offers on-site lawn, tree and shrub fertilization, insect control and other related services through its network of 160 locations. The company also launched a direct-to-consumer helpline allowing lawn owners to call Scotts for advice and assistance.

In 2001 Scotts was involved in a major dispute with nature conservation bodies and the UK Government about the future of several peat bogs in the north of England. Under pressure from the European Union the UK government moved to declare a number of peat bogs, covering an area of 4097 acres in Yorkshire and Cumbria, as Special Areas of Conservation, thus ending Scotts ability to harvest peat for their garden products. During the course of the dispute Nick Kirkbride, the then managing director of Scotts in Britain, described the peat bogs as having “no more conservation interest than a ploughed field”. The peat bogs were eventually saved from further destruction by the payment by the UK government of compensation of £17 million to Scotts for loss of the right to extract peat.

Scotts has developed several genetically modified grasses, including herbicide-tolerant Kentucky bluegrass and creeping bentgrass. In 2007, the U.S. Department of Agriculture fined Scotts Miracle-Gro $500,000 when modified DNA from GM creeping bentgrass, was found within relatives of the same genus (Agrostis) as well as in native grasses up to 21 km (13 mi) from the test sites.

Scotts was founded in 1868, by Orlando Scott as a premium seed company for the U.S. agricultural industry. In the early 1900s, the company began a lawn grass seed business for homeowners and, in 1924, became the first to ship grass seed products directly to stores. Prior to that, consumers could purchase Scotts seed only through the mail. By 1940, Scotts’s sales had reached $1,000,000 and the company had 66 associates.

Consumer lawn and garden specialist The Scotts Miracle-Gro Company (NYSE:SMG) delivered total returns of 53% in 2016, which handily beat gains of 14% by the S&P 500. While the stock’s performance last year pushed five-year gains to 129% for investors, the forces that have driven shares higher in recent years aren’t going to fade away anytime soon. There’s a case to be made that the company may not have hit its full stride yet.

Management has a long-term goal for operating income to represent 18% of total sales. Had that occurred in fiscal 2016, operating income would have registered at $510.5 million, or an increase of 11%. But it gets better: The Scotts Miracle-Gro Company has raised the bar for operating profits and revenue. Put another way, that means operating income growth will outpace revenue growth for the next several years in order to chase down the 18% target set by the company’s brass.

Investors should be encouraged by the early success yielded by the company’s multi-year restructuring initiative. The Scotts Miracle-Gro Company is now better positioned to capitalize on growth opportunities, make strategic acquisitions to bolster future earnings, and extract more profits from each dollar of revenue. That makes the stock look pretty cheap relative to its future earnings potential. Therefore, despite solid gains last year, the stock has the potential to continue rising from current levels.

Stocks can go up for any number of reasons, some of them very silly reasons. That wasn’t the case with The Scotts Miracle-Gro Company, though. The world’s leading consumer lawn and garden supplier earned every bit of its stock gains in 2016.

Healthy profits handed The Scotts Miracle-Gro Company a trailing price-to-earnings ratio of just 14 last July, which catalyzed the amazing run in share gains through the second half of the year. Despite a soaring stock price, the trailing P/E sits at a historically low 18.5 today.

Because of the inherent seasonality of the consumer lawn and garden market, The Scotts Miracle-Gro Company has to rely on revolving debt facilities to smooth out finances throughout an entire calendar year. That isn’t a red flag, but when coupled with a modest level of long-term debt, it can result in relatively high interest rate expenses.

Despite the incredible run-up, investors may want to consider that The Scotts Miracle-Gro Company stock is actually still cheap. Why? Simply put, the ability to continue growing profits and delivering value to shareholders for the foreseeable future bodes well for a continuation of the stock’s upward trend. 

Consider that The Scotts Miracle-Gro Company stock now trades at 21 times trailing earnings, which just so happens to total $4.29 per share — essentially the high end of this year’s guidance range. That’s just below the stock’s five-year average trailing earnings ratio of 24, but it also only accounts for financial performance from fiscal 2017. Given the fact that first-quarter 2017 results were powered higher by recent acquisitions — including multiple seasonality-proof hydroponics companies — management may be underestimating the strength of the newest parts of its business. 

That handily beat the S&P 500, so investors may be wondering if they should lock in gains from the stock, but I think that could be a bad idea. Here are three terrible reasons to sell The Scotts Miracle-Gro Company. 

At ScottsMiracle-Gro, we believe in the importance of giving back. As a leader in the communities where we operate, we take to heart the phrase, “find a need and fill it,” a belief firmly held by Miracle-Gro founder Horace Hagedorn.

Our Community Involvement At ScottsMiracle-Gro, we believe in the importance of giving back. As a leader in the communities where we operate, we take to heart the phrase, “find a need and fill it,” a belief firmly held by Miracle-Gro founder Horace Hagedorn. Learn More

Scotts® Turf Builder® EZ Seed is the worst product I've ever bought. The claim that it'll grow grass anywhere is so wrong. Total waste of money, will never buy the product again and I'll make sure friends and family never do so either. Too bad Scotts usually has descent yard care products. Signed, Very disappointed 🙁

Scotts® Turf Builder® EZ Seed is the worst product I've ever bought.  The claim that it'll grow grass anywhere is so wrong.  Total waste of money, will never buy the product again and I'll make sure friends and family never do so either.  Too bad Scotts usually has descent yard care products.Signed,Very disappointed 🙁

Scotts LawnService serves the “do-it-for-me” consumer in the U.S. with on-site lawn, tree and shrub fertilization, insect control and other related services through its network of 160 locations. Scotts LawnService is considered a leader of this USD$5 billion category.

The Scotts Co. also manufactures Tomcat rat/mouse bait products. My husband & I researched rat bait products after discovering a rat in our yard. We specifically selected Tomcat because it advertises it is “dog-resistant & child-resistant.” We placed them away from where our pets could get them but also tried to follow the packaging directions about placement. However, our youngest dog got a hold of a rat bait trap and was able to consume the poison. After almost $600 in Vet bills, our dog was finally stabilized but still had some residual effects of the poison that took some time to exit her system. The poison they use in Tomcat is extremely dangerous and difficult to treat if not discovered right away. Dictionaries describe resistant as “capable of withstanding the force or effect of; not easily changed or damaged, or not accepting of something; not affected or harmed by something;” We were so upset that the plastic box containing the poison was not resistant at all. Upon further inspection, it wouldn't take much for a young child to pull the plastic box apart and get to the rat bait either. I sent my complaint to the company. The advertising about the poisons being resistant to animals and children is extremely misleading as well as inaccurate. Beware!

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