Over-production Of California Cannabis Affects Scotts Miracle-Gro Cannabis Segment

Regulatory changes in California and an over-production of cannabis in the state put pressure on revenue in the Hawthorne segment of business for Scotts Miracle-Gro (SMG). The lawn and garden company that is known for its pesticides and fertilizers released its fiscal third-quarter results after the market close on Tuesday.

Company-wide sales increased 2% to $994.6 million versus $973.4 million last year for the same time period. Non-GAAP adjusted earnings were $2.67 a share versus last year’s $2.47 and GAAP income was $2.23 for this year, which was lower than last year’s $2.41. Net income for the quarter was $82.8 million, which fell from last year’s $151.9 million.

“Our U.S. core business was simply outstanding in May with record results and positive year-over-year consumer purchases nearly every day during the month,” said Jim Hagedorn, chairman, and chief executive officer. “The fact that consumer purchases were down 12 percent entering May and were essentially flat versus year-ago levels by the end of June speaks to the resilience of our category and strength of our brands. It also speaks to the commitment of our team as well as our consumers and retail partners.”

At first glance, the Hawthorne business looked okay as sales jumped 2% to $74.2 million from last year’s $72.4 million, but excluding company acquisitions sales actually dropped 37%. Those acquisitions include the recently acquired Sunlight Supply.

“The integration of Sunlight into the Hawthorne operations is moving swiftly and we are already more than halfway to our goal of achieving at least $35 million in synergies by combining our two businesses,” Hagedorn said. “While we still have a lot of work to do to finish the integration, I’m confident that our Hawthorne business will be vastly improved as a result of this transaction and will be uniquely positioned to benefit from the rapidly evolving marketplace for hydroponic products.”

Scotts re-affirmed the revised guidance that it provided in mid-June forecasting that full-year sales would be flat to 2% higher than year-ago levels. Non-GAAP Adjusted earnings per share are expected to be in a range of $3.70 to $3.90 per share.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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