Late Spring May Clip Scotts

An analyst says poor weather could be a near-term drag.
Publish date:

A late arrival for spring may equate to soggy numbers in the near term for

Scotts Miracle-Gro

(SMG) - Get Report

, a Wall Street analyst cautioned Wednesday.

The Midwest and the eastern U.S. experienced a winter that got off to a slow start and then just wouldn't go away. For Scotts, the world's largest marketer of branded consumer lawn and garden products, its sensitivity to spring could endanger its ability to meet its targets, says Doug Lane, an analyst at Avondale Partners.

"The spring season is not shaping up to be very good," he says. "It might be hard to catch up and make the forecasted numbers." He cites

Pier 1

(PIR) - Get Report

as a company that blamed poor sales on the lousy weather of recent months.

Lane likes Scotts, but he also gives it a neutral rating for now. "It's done what I thought it would do."

However, even if Scotts does hit a spring-related bump, he says, the company should benefit longer term from the aging population as baby boomers move to warmer climates and spend more time in their yards.

Scotts, of Marysville, Ohio, makes and markets its namesake fertilizer, along with pesticides and grass seeds. It also owns the high-end gardening chain of Smith & Hawken.

According to the Census Bureau, monthly sales in the category of building materials and garden items were down in April from both the prior month and previous year. May figures aren't available yet. Lane has kept watch on the weather for 10 cities, and he says April was 10% cooler and 27% wetter than the same month in 2006.

Still, when Scotts reported its second-quarter results on May 1, the company was upbeat.

"The lawn and garden season has started strongly in nearly all parts of our business, and we remain confident in another year of record performance," Jim Hagedorn, chairman and chief executive, said in a prepared statement at the time. "The growth of our International business during the first half of the year is especially encouraging."

Scotts also affirmed its previous earnings guidance and said this year's sales should be at the high end of its 8% to 10% growth prediction, but slightly offset by pressure from its product mix on margins.

Jim Barrett, an analyst at C.L. King & Associates is bullish on Scotts, although he has a neutral rating, as well. He notes in a recent research report that while the spring season got off to a late start, sales were up 7.6% in the second quarter.

"I've been covering the stock for years, and it's a great company," says Barrett. He's not concerned that spring or the weak housing market will have much of an effect on Scotts.

Shares of Scotts traded down 4.7% to $44.08 on what was a difficult day for the market in general.