Sale of unit aids Scotts’ shift in focus

Scotts Miracle-Gro is staying closer to home.

The Marysville-based maker of grass seed, fertilizers and other lawn and pest-control products sold its European and Australian business to a private-equity firm for $250 million.

After taxes and other costs associated with the deal, Scotts plans to have $150 million to use for acquiring companies involved in hydroponics, where sales are

growing at a double-digit percentage clip.

“We’ve taken another big step in reconfiguring the corporation,” CEO Jim Hagedorn said during a quarterly earnings call with analysts. Scotts had been looking for a buyer for its overseas arm for two years.

It is part of Hagedorn’s tilt away from slower-growing businesses toward areas such as hydroponics, where sales were up 22 percent in the company’s second quarter from a year earlier. After the sale is completed later this year, Miracle-Gro will derive about 95 percent of sales from the United States, a market that Hagedorn said is more profitable and has more long-term potential than foreign markets do.

The deal could put a dent in earnings this year, but the sales and profits will be replaced soon.

Bill Chappell, an analyst with SunTrust, wondered how Scotts would fill the hole. Europe contributed $274 million in sales last year.

Scotts will grow through acquisitions in hydroponics, said Hagedorn.

The company is looking to fill in around its other purchases, which cover lighting, growing systems, nutrients and more. Scotts could buy up more lighting providers, fluid makers, control systems and even air flow, heating and cooling.

“We have a big vision,” Hagedorn said.

In the past two years, Scotts has spent more than $200 million acquiring hydroponics businesses. Jim Barrett, an analyst with C.L. King, wondered whether Scotts was starting to see competition from “deep-pocketed players” for some of these acquisitions. Not much, Hagedorn said. It’s a wonder, given the

growth Scotts has seen. In its second quarter, overall sales fell 3 percent from a year earlier, including a drop of 8 percent in Europe, but its niche businesses, such as Hawthorne Gardening, which consists of hydroponics and other products, grew 50 percent.

Although hydroponics is booming, Scotts had a middling quarter due in part to cold, wet weather in major U.S. markets. Sales were $1.2 billion in the second quarter compared with $1.24 billion a year ago. Revenue Net income Earnings per share Revenue Net income Earnings per share Revenue Net income Earnings per share Revenue Net income Earnings per share

Wall Street didn’t like it. Scotts shares dropped 6 percent Tuesday to close at $91.23.

Hagedorn thinks that sales will catch up by the end of the year and turn positive.

“We expected a difficult comparison through the first half of the year,” Hagedorn said in a press release, “and we are confident in how we are positioned for the balance of the season.”

State Auto Financial reported a first-quarter loss because of severe storms throughout the Midwest and parts of the South. The company previously said it would post $34 million in catastrophic losses in the quarter from the storms. Otherwise, the insurer said steps it has taken to improve its auto and homeowner businesses are paying off, and the company is seeing better results.

Bravo Brio sales fell almost 2 percent year-over-year as the chain of Italian restaurants continues to see declining traffic at its stores. The company will close six restaurants this year: three in the second quarter and three in the fourth quarter. Bravo Brio has 117 restaurants in 33 states. The company reported net income of $550,000, compared with $2.2 million a year ago, due to legal charges.

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