Editors Note:

Regardless of your feelings about the legalization of marijuana, this company stands to benefit significantly. Growing marijuana indoors requires specialized lighting, ventilation, fertilizer and in some cases hydroponic facilities. Scotts is racing to be the vendor of choice for all these needs.



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SMG - Scotts Miracle-Gro - Company Profile

The Scotts Miracle-Gro Company manufactures, markets, and sells consumer lawn and garden products worldwide. The company's Global Consumer segment offers lawn fertilizers, grass seed products, spreaders, other durable products, and outdoor cleaners, as well as lawn-related weed, pest, and disease control products; water soluble and continuous-release plant foods, potting mixes, garden soils, mulch and decorative groundcover products, landscape weed prevention products, plant-related pest and disease control products, organic garden products, live goods and seeding solutions, and hydroponic gardening products; and insect and rodent control products, and selective and non-selective weed control products to protect homes and maintain external home areas.

For Q2 they reported earnings of $2.16 compared to estimates for $2.08. Revenue of $994.1 million missed estimates for $1.04 billion. The company said miserable weather in April/May caused a significant decline in sales as gardeners and homeowners put off buying until June. The continuous rain turned everything green and that depressed fertilizer sales. Going into early April sales for the year were up +14% but after May they had declined -2%. There was also a shift of six days in the company's fiscal calendar.

The company raised earnings estimates for the full year to $3.75-$3.95 but reduced full year revenue forecast as a result of the spring slump. Shares soared on the guidance as the company was very bullish on the business.

They acquired a 75% stake in Gavita, a hydroponic products distributor. They also signed a definitive agreement to acquire Botanicare, a producer of fertilizer and hydroponic systems. They entered into a third transaction that has not yet been announced. They also increased their relationship with AeroGrow International, a consumer direct indoor gardening and hydroponic supplies business.

SMG is rapidly beefing up its lighting division, expanding on hydroponics and adding new products that will help indoor growers. They expect sales of hydroponics equipment to reach $250 million for the year. During the year, they also completed the sale of the Scotts LawnService business into a joint venture with Truegreen and received a $196 million cash distribution from the venture.

Along with earnings, they announced a $500 million share buyback in addition to the $400 million remaining on a prior authorization. "Our priorities for uses of cash are beginning to shift and we expect to begin a more aggressive share repurchase plan in the upcoming quarters."

Earnings Nov 3rd.

Shares spiked to $83 after earnings and moved sideways for the last month. After dipping back to $81 last week it looks like shares are preparing to move higher. A breakout over $83.25 would be a new high.

With a SMG trade at $83.25

Buy Dec $85 call, currently $2.80, initial stop loss $80.65.


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