Scotts Miracle-Gro CEO raises eyebrows with tariff comments
TV viewers may recognize the variation of the Scotts Miracle-Gro () tagline that's in a series of commercials featuring the Scotts Lawn Guy, an aggressive Scottish character with an intense passion for lawns.
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Perhaps the Lawn Guy could exhort shares of the consumer lawn, garden and pest control products company into turning greener.
The Marysville, Ohio, group's shares are down 20% since January and off nearly 22% from a year ago.
Scotts also brought the lifestyle expert Martha Stewart on board as chief gardening officer.
"Spring is probably one of my favorite times of the year," Stewart said during the company's April 30 earnings call. "Everything is coming alive, and I personally can't wait to get my gardens fully planted."
Stewart told analysts that she was working to bring gardeners, "including the new generation, products that they will love and make part of their everyday lives."
"And that is a very good thing," she said, and then handed the mic over to Chief Executive Jim Hagedorn.
"It's a crazy and confusing macro environment for any company today, but I can simplify things," he said. "We're good. Our outlook is unchanged and we're reaffirming our full year guidance of $570 million to $590 million" of earnings before interest, taxes, depreciation and amortization.
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As for the Trump administration's tariffs, which have been dominating the news and clobbering the markets, Hagedorn said "we're largely unaffected in fiscal '25."
"We see no impact in our margins or pricing for this year," he said. "Historically, our equity has been a safe harbor in tough times. Everything you'll hear today is centered around getting back to that."
Hagedorn told analysts that Scotts had plenty of pretariff inventory, and "we do not anticipate pricing actions in fiscal '25 due to tariffs, nor do we expect margin pressure.
"If things change in '26, and we do feel more tariff and/or margin pressure, we will mitigate the impact and if necessary, take pricing," he said.
Scotts posted mixed first-quarter results, beating earnings estimates but falling short of Wall Street's revenue forecasts
"We delivered double-digit increases in consumer takeaway, gained market share and built momentum," Hagedorn said. "We're happy with our consumer product sales to retailers."
He said unit volumes in the lawns business had declined and he challenged the team to develop a long-term solution. Early results have been promising..
"Consumers want a nice lawn all season long without a lot of work, but they don't always know how to make it happen," Hagedorn said.
"The solution is regular feedings, to create a thicker lawn that is less susceptible to weeds and disease and ultimately has less need for pesticides and fungicides."
However, the company got away from marketing regular feedings, and scrapped the one-bag approach for multibag use for specific problems such as weeds, bugs or disease.
"It was effective in selling one bag of fertilizer, but it was ineffective in giving the consumer the lawn they really want," Hagedorn said. "This year, we've returned to a multibag strategy."
Scotts also decided to pass the dutchie on the left hand side and get out of the cannabis business.
Scotts had created a subsidiary for the business, Hawthorne, which made acquisitions in companies that sold marijuana cultivation supplies, and invested in a Canadian business directly involved in growing and selling marijuana.But last month the company transferred its investment in the growing and distribution business to Bad Dog Holdings, an 'independent strategic partner.'
"We figured we'll be an early entrant, and that within three to five years — this is like 10 years ago — the feds would make the laws so that it wasn't federally a Schedule 1 narcotic," Hagedorn said in an interview with Barron's. 'We had a lot of faith the Democrats would do it."
"Equities in pot companies were at a peak when Biden got elected, and you had a Democratic Senate and a Democratic House."
Weed is still illegal on the federal level and 'you cannot deduct your business expenses," Hagedorn said.
"Your top-line revenue is your taxable income, so you're paying about an 80% tax rate," he explained. "Throw on state and local taxes, and you cannot make money.'
Hagedorn told analysts that "our next step is to sell Hawthorne Gardening to a dedicated cannabis company, by fiscal year end."
JP Morgan analyst Jeffrey Zekauskas lowered the investment firm's price target on Scotts to $65 from $80 and affirmed an overweight rating on the shares.
After the earnings report the firm reduced its estimates for Scotts' Ebitda, citing lower trading multiples in a period of greater economic risk.Sign in to access your portfolio
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