Scotts Miracle-Gro tries AI help

Scotts Miracle-Gro (NYSE: SMG) was a pandemic winner as lockdowns meant more time spent in the backyard.

Its leading position and tie in with retailers such as Canadian Tire and Home Depot provided a huge tailwind. It also had high hopes for the cannabis industry investment betting a US federal law decriminalizing cannabis was on the way.

But with reopening, discretionary spending left the backyard for other leisure pursuits and the law legalizing cannabis has yet to be passed.

Here’s an update:

Scotts Miracle-Gro Company  (NYSE: SMG) Recent close $75.47 (All figures in US dollars.)

Background: Scotts is one of the world’s largest marketers of branded lawn and garden care products. They include Scotts Turf Builder lawn fertilizer, Miracle-Gro plant food and Ortho herbicide. Its Hawthorne Gardening Co. subsidiary provides fertilizers and hydroponic growing systems to the cannabis industry. 

Performance: Scotts shares have recovered from their post-pandemic hangover. The shares are 18% higher year-to-date.

Developments: Scotts reported higher profit and revenue in its third quarter. It posted a profit of $132.1 million, or $2.28 a share, compared with $43.7 million, or 77 cents a share. Quarterly revenue came in at $1.2 billion.

The company has decided to keep its troubled Hawthorne cannabis-focused division after considering a sale or spinoff. The segment reported profit of $3.8 million for the quarter versus a loss of $8.7 million a year ago.  

Scotts continues to streamline operations. In one initiative it has teamed up with Google Cloud to offer an AI app for its sales team. Traditionally the reps relied on a 450-page manual for product information. The app provides up-to-date product information with voice recognition. Now a rep can ask which products are most appropriate for a customer based on the season and location.   

Discussion: Scotts was a pandemic winner as lockdowns meant more time spent in the backyard. Reopening led to a shift in consumer behavior. It also had high hopes for Hawthorne, betting a US federal law decriminalizing cannabis was on the way. The law has yet to be enacted leading to losses and a restructuring.

Dividend: Scotts increased its dividend twice during the pandemic and issued a special dividend. The $0.66 quarterly payment yields 3.6% at current prices and seems safe.

This article appeared in a recent issue of the Income Investor.  For information on how to reprint this article please view this page.