Scotts Miracle-Gro CompanySMG

Morningstar Rating

Stock Research and Analysis

by Zoe Tan

Scotts Miracle-Gro is the combination of two well-established brands that have dominated the North American lawn and garden market for decades. In our opinion, commanding market share and unparalleled distribution capabilities have earned the firm a narrow economic moat. Read more

Bulls Say

Innovative products, like the recently launched Water Smart line of lawn fertilizers, help Scotts maintain its pricing power with big-box retailers.

The firm has already made substantial inroads with its all-natural and organic plant food and fertilizer. By establishing itself early in this category, the firm will stay one step ahead of increasingly environmentally conscious consumers.

In 2006 the firm launched Miracle-Gro LiquaFeed. With nearly $40 million in sales, this product quickly became the most successful launch in company history.

With more baby boomers reaching retirement age, demand for lawn- and garden-care products should increase.

We believe the addition of private-label products to Scotts' portfolio will further strengthen the firm's dominance in the North American fertilizer industry. Read more

Bears Say

Volatile commodity costs can have a significant impact on Scotts' margins. For example, the price of urea, one of Scotts' key fertilizer inputs, has climbed more than 60% in 2008.

Weather conditions can have dramatic effects on Scotts' sales. Wet weather can keep gardeners indoors, and drought conditions can spur watering bans.

Continued weakness in consumer spending could have a significant impact on discretionary categories like Scotts LawnService and Smith & Hawken.

Home Depot, Lowe's, and Wal-Mart collectively account for 60% of Scotts' North American sales. The loss of these customers or reduction in orders will adversely affect revenues. Read more

Strategy

Traditionally, Scotts has grown its brand through product innovation and marketing initiatives. As its core Miracle-Gro and Turf Builder brands matured, the company began to launch geographic expansions into Europe and emerging markets since the late 1990s. Read more

Management

James Hagedorn, son of Miracle-Gro founder and former chief executive Horace Hagedorn, was named CEO in 2001 and also serves as chairman of the board of directors. We would prefer to see the chairman and CEO roles separated, to ensure an independent party oversees the CEO. Read more

Profile

Scotts Miracle-Gro is a market leader in lawn and garden care. The firm manufactures and markets a variety of plant nutrients and pesticides under the Scotts, Miracle-Gro, Ortho, and Roundup brand names. Read more

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