The Scotts Miracle-Gro Company (NYSE: SMG) is North America's leading producer of lawn care and gardening products. The company offers brands such as Miracle-Gro, Roundup, and Weed-B-Gon.
In North America, Scotts has a greater than 50% market share by sales in all but one of the product areas in which it participates. Despite its dominant market share, Scotts spends approximately five percent of its revenues on advertising, making the company's brands highly recognizable to consumers. Scotts is also well known for its close relationships with leading retailers; 60% of its sales come from just 3 sources. These include Wal-Mart Stores (WMT) (15%), Home Depot (HD) (29%), and Lowe's(16%).
Scotts also faces challenges common to all companies in the agricultural chemical industry, including highly volatile input costs and fluctuations of demand for its products due to weather conditions, such as extreme rainfall or droughts.
Scotts is best known for its product Miracle-Gro, a brand of lawn fertilizer found all over the continental United States. The company offers a range of products in the lawn and garden industry, including fertilizers, weed controllers, grass seeds, and other items.
Scotts has two major advantages in the North American market. The first is a strong, well-known brand image. Scotts invests 5% of its yearly revenues on advertising, a large amount when compared with its competitors, making it prominent in the mind of consumers. Most (60%) of its sales come from 3 sources: Wal-Mart Stores (WMT) (15%), Home Depot (HD) (29%), and Lowe's(16%). 
In recent years Scotts has begun to diversify its income base and transform the company into an all-around outdoor living provider through strategic acquisitions. Since 2001, the company has invested $125 million in acquiring local lawn care businesses to create Scotts LawnService, which provides on-site lawn care for consumers. In 2005, Scotts acquired Smith & Hawken, an outdoor goods retailer known for high quality furniture, for $68.5 million.  In 2006, Scotts acquired Gutwein & Co. Inc, a producer of bird feed, for $77 million. 
Second Quarter Fiscal 2010 Results
For the quarter ended April 3, 2010, ScottsMiracle-Gro reported sales of $1.12 billion, up 19 percent from last year and driven by a 21 percent improvement in its largest segment, Global Consumer. It is important to note that the timing of the Company's fiscal calendar resulted in a five-day shift forward of the second quarter end as compared with 2009. When adjusted to reflect comparable reporting periods, company-wide sales in the second quarter were up 10 percent. The shift impacted earnings by $0.23 per share for the quarter.
Reported sales for Global Consumer were $1.01 billion, up from $840.6 million for the same period last year. Increased sales and improved gross margins resulted in adjusted operating income for the Global Consumer segment of $254.5 million, a 28 percent improvement from $199.5 million for the same period last year.
Scotts LawnService reported a 7 percent decrease in sales to $30.6 million from $32.8 million. Improved operating efficiencies resulted in an 11 percent improvement in the segment operating loss, reducing the loss to $14.4 million compared with $16.1 million a year ago. Scotts LawnService historically earns all of its profits in the second half, although the business reported its first profitable March on record.
Global Professional sales increased by 16 percent to $78.0 million from $67.5 million last year. Unit volume improved in most areas of the business, and operating income for the segment was $7.7 million, essentially flat with the same period last year.
In its Global Consumer segment, the Company manufactures and markets products to homeowners who are in search of weed-free and pest-free lawns, gardens and indoor plants. The Global Consumer segment sells products in categories, such as lawns, gardens, growing media, grass seed, controls, wild bird food and other consumer products. A similar range of products is available in the United Kingdom under the EverGreen brand, in France under the Fertiligene brand name and in Germany, Austria, the Nordic countries and throughout Eastern Europe under the Substral brand name. Gardens are a line of plant foods, which is marketed under the Miracle-Gro brand name in North America, the United Kingdom and selected Western European markets. The Company also markets a line of plant food products under the Substral brand name in Germany, Austria, the Nordic countries and throughout Eastern Europe, and under the Fertiligene brand name in France.
Growing Media are a line of growing media products for indoor and outdoor uses, which is marketed under the Miracle-Gro, Scotts, Hyponex, Earthgro and SuperSoil brand names in the United States, as well as other labels. These products include potting mix, garden soils, seeding soil, topsoil, manures, sphagnum peat, and decorative barks and mulches. The Company offers a line of grass seed products for consumers. Its grass seed products are sold under the Scotts Turf Builder, EZ Seed and PatchMaster brand names in the consumer market.
Controls are a line of weed control, indoor and outdoor pest control and plant disease control products, which are marketed under the Ortho brand name in the United States. Ortho products are available in aerosol, ready-to-use liquids, concentrated, granular and dust forms. Ortho control products include Weed-B-Gon Max, Bug-B-Gon Max, Home Defense Max, Ortho Max, GroundClear, RosePride and Orthene Fire Ant Killer. In Europe, the Company markets a line of control products under brand names, including Weedol, Pathclear, KB, Fertiligene, Celaflor and Nexa Lotte.
The Company manufactures and markets an assortment of wild bird food products. The Morning Song line of products is sold at mass retailers, grocery, pet and general merchandise stores. It also offers a Scotts Songbird Selections branded line of wild bird food. The Company also manufactures and markets several lines of lawn spreaders under the Scotts brand name, including Turf Builder EdgeGuard DLX spreaders, AccuGreen drop spreaders and Handy Green II handheld spreaders. It also sells a line of hose-end applicators for water-soluble plant foods, such as Miracle-Gro products, and lines of applicators under the Ortho and Dial ’N Spray for the diluted application of control products sold in the concentrated form. In Canada, the Company sells a range of lawn and garden fertilizers, control products, grass seed, spreaders, and growing media products under the Scotts, Turf Builder, EcoSensetm, Miracle-Gro, Ortho, Killex and Roundup brands.
The Global Professional segment sells professional products to commercial nurseries, greenhouses and specialty crop growers primarily in North America, Europe, the Middle East, Africa, Latin America, Australia, New Zealand and throughout the Far East. The Company’s professional products include a line of controlled-release fertilizers, water-soluble fertilizers, plant protection products, wetting agents, growing media and grass seed that are sold under brand names that include Osmocote, Sierrablen, Peters Professional, Peters Excel, Agroblen, Agrocote, Agroleaf, Rout, OH2, Scotts Professional Seed and Scotts Turf-Seed.
The Scotts LawnService segment provides residential lawn care, lawn aeration, tree and shrub care and limited pest control services in the United States. As of September 30, 2009, Scotts LawnService had 82 Company-operated locations and 78 independent franchises. The Company competes with Spectrum Brands, Bayer AG, Central Garden & Pet Company, Enforcer Products, Inc., Green Light Company, Lebanon Seaboard Corporation, K&S Aktiengesellschaft, Westland Horticulture, Agrium, Inc., Haifa Chemicals Ltd., Chisso Asahi Fertilizer Co. Ltd., Syngenta AG, Pursell Industries, Inc., Norsk Hydro ASA, ServiceMaster and Kemira Oyj.
Scotts has been affected by the global rise in raw material prices. The price of urea, a key component in fertilizers, has risen over 60% from since 2007. The price spiked an additional 20% when China enacted a 135% export tariff on fertilizer products. The price of diesel, another key component, has also risen 12%.  Rising oil prices also put pressure on consumer spending, curbing their appetite for goods such as lawn care products. The increases in raw material prices are putting a serious dent in Scotts's bottom line, as the costs of goods sold skyrocket while pricing remains stable.
Since the company specializes in lawn care products, seasonality has a dramatic impact on revenues. Generally, 70-75% of sales occur during Q2 and Q3. The timing of Scotts' product lineup is relatively undiversified, meaning any sort of seasonal disruptions can cause harm to revenues. The huge effects of seasonality were seen in 2008, when an unusually wet and cold April caused sluggish sales in the important second quarter. These problems were exacerbated by extreme heat and droughts in the summer, which discourage purchasing of lawn care products. Any sort of severe weather conditions, such as prolonged drought, have serious potential to damage Scotts' revenues.
In March, Scotts had to recall four products due to labeling issues and non-declaration with the EPA. The recalls associated with this legal trouble cost Scotts approximately $31 million.  The company withdrew its Miracle-Gro Shake 'n Feed Plus Weed Preventer and Scotts Bonus S MAX, as well as Scotts TurfBuilder MAX and a product mostly used by its LawnService business. Adding to its woes, the company admitted to having "certain discrepancies in its registration records with respect to several additional products in June.  While the recall had a negligible impact on the revenue of the company (almost $2bn in FY 2007), these recalls have the potential to cause serious damage to Scotts' critical brand image.
Scotts three main competitors are:
The table below compares some of the top-level product offerings of Scotts Company and its main competitors.