If you invested $ 3,000 in Scotts Miracle-Gro in 2011, this is what you would have today

WWhile not just a marijuana business, a gardening supplies business Scotts Miracle Gro (NYSE: SMG) is considered by many to be a stock of cannabis. The reason for this is its secret sauce and the growth engine of the company – hydroponics supplier Hawthorne, which was established in late 2014.

To gauge how much of a difference Hawthorne made to the Scotts business, let’s look back a few years before the unit was established.

A bountiful harvest

Using a convenient, even number, we’re going to go back in time about 10 years to September 1, 2011. Regular quarterly dividends) more than six times, hitting a hefty $ 18,424.

Happy woman holding marijuana seedling.

Image source: Getty Images.

In 2011, long before the kudzu-like spread of legalized marijuana across North America, Scotts became closely tied to its traditional business of selling gardening supplies.

This was far from the stuff of high yield investors’ fantasies. The business of the business depended heavily on a trio of retailers selling its wares, in particular Walmart (NYSE: WMT), Home deposit (NYSE: HD) and Lowe’s (NYSE: LOW); taken together, these outlets accounted for approximately two-thirds of Scotts’ annual revenue.

When it comes to financial performance, revenue fluctuated within a relatively narrow range between $ 2.69 billion and $ 2.87 billion from 2007 to 2012. Profitability was even more erratic as the company recorded a loss. result in 2008, when the financial crisis hit. His best year before Hawthorne for net profitability was 2013, when he made just over $ 161 million.

Hawthorne became a sales and profit engine fairly quickly, driven by acquisitions as well as organic expansion as the legitimate weed market opened up. Looking at the unit’s results from when Scotts first started releasing them, we see significant gains in both items when compared to the company’s core gardening supplies business (“U.S. consumer “). Here are the annual net sales, in millions of dollars:

Year American consumer Hawthorn Other Total Hawthorn% of total
2016 2,204.4 121.2 180.6 2 506.2 4.8
2017 2 160.5 287.2 194.4 2,642.1 10.9
2018 2 109.6 344.9 208.9 2,663.4 12.9
2019 2281.1 671.2 203.7 3,156.0 21.3
2020 2823.1 1,083.5 225.0 4,131.6 26.2

Source: Scotts Miracle Gro.

From 2016 to 2020, Hawthone’s revenue grew – albeit from a very low base – by nearly 800%, compared to 28% for the US consumer segment. But even just taking the year-over-year growth figure for 2020, Hawthorne still wins at 61% to 24%.

We can see a similar dynamic at work with the annual contribution to pre-tax income (again, in millions of dollars) of the three reporting segments:

Year American consumer Hawthorn Other Total Hawthorn% of total
2016 493.7 11.8 10.4 515.9 2.3
2017 521.5 35.5 13.4 570.4 6.2
2018 496.6 (6.1) 11.2 501.7 n / A
2019 527.8 53.5 10.3 591.6 9.0
2020 686.1 120.1 11.7 817.9 14.7

Source: Scotts Miracle-Gro.

Well fed

Scotts clearly intends to continue stuffing Hawthorne with nourishing plant foods.

In mid-August, management announced further acquisitions to strengthen this hot unit. It acquired the nutrient portfolio from its counterpart Rhizoflora and purchased a $ 3.2 million warrant for a stake in Dewey Scientific. The latter is a small company that, in its own words, “produces exclusive cannabis genetics with evolutionary leaps in standardization, quality and resilience for growers”.

No wonder, then, that in its latest forecast, Scotts said it expects Hawthorne sales for the year 2021 to increase 40-45%, compared to 7-9% for the retail segment. American consumers. This should mean much higher profitability; On a non-GAAP (adjusted) basis, the company estimates that net earnings per share will be $ 9.00 to $ 9.30 for the year. This low end is 24% higher than the 2020 amount and more than double the 2019 result.

As a major supplier to the marijuana industry, Hawthorne and its parent company are currently in a great position. The legalization train will continue to move forward, perhaps even at the federal level. That, combined with the already strong performance of its flagship business unit, should allow the fundamentals of this company to grow like a… well, you know.

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Eric Volkman does not have a position in any of the stocks mentioned. The Motley Fool owns stock and recommends Home Depot and Scotts Miracle-Gro. The Motley Fool recommends Lowes. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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