Scotts Miracle-Gro Co. rose the most in a decade after its Roundup herbicide and marijuana-supplies business rebounded from sales slumps, boosting earnings above expectations.
Increased advertising to help counter the negative publicity generated by concerns about Roundup’s safety contributed to a 20 percent rise in quarterly sales of the weedkiller, Chief Executive Officer Jim Hagedorn said on a conference call with analysts Wednesday to discuss results.
Meanwhile, a burgeoning black market for cannabis in California reversed the effects of a regulatory crackdown last year. Revenue benefited from higher profit margins to illicit growers, said Chris Hagedorn, the CEO’s son and general manager of the pot-supplies business.
“It’s not something we are lamenting,” he said on the call.
Scotts rose as much as 11 percent, the most intraday since February 2009. The shares were up 6.1 percent to $90.21 as of 1 p.m. in New York.
Revenue more than tripled at the company’s Hawthorne business, which supplies specialty fertilizers and growing equipment to marijuana growers, helped by the acquisition of a leading distributor. Sales climbed 21 percent when calculated as if the new business were owned last year, Chris Hagedorn said.
That’s a sharp turnaround from last year, when California’s shift to a regulated recreational cannabis market drove weaker-than-expected sales and quarterly earnings misses. The growth of the illicit market in the state brings a higher profit margin to the business, which also got a lift when one of its top competitors closed during the slump.
The surge in demand for Roundup surprised even Scotts, which last year introduced a “backup” herbicide called Ground Clear to retain home gardeners who may no longer want to buy a weedkiller that’s the subject of health claims. The Roundup marketing campaign was funded by a $20 million reimbursement from Bayer AG, which licenses the consumer business to Scotts, to compensate for ongoing controversy over whether Roundup causes cancer, Jim Hagedorn said.
Roundup and Ground Clear combined to boost herbicide sales more than a third in the fiscal second quarter, he said.
“I can’t predict that it’s going to be as good next year,” the CEO said on the call. “It’s the court of public opinion and consumers that matter here.”
Bayer, which acquired Roundup with its acquisition of Monsanto, recently lost two U.S. court cases claiming the weedkiller causes cancer. It faces 13,400 more lawsuits. While Bayer says Roundup is safe, the legal defeats have wiped more than 35 billion euros ($39 billion) off the company’s market value.
Scott’s second-quarter earnings of $3.64 a share topped the highest analyst estimate, according to a company statement. The Marysville, Ohio-based company reaffirmed its full-year earnings guidance and said sales growth could exceed the original forecast of 10 percent to 11 percent.