Scotts keeps up the search for European division buyer

US-based fertilisers, chemicals and garden care business Scotts Miracle Gro has announced improved results, but saw European returns fall as it continues to seek a partner to take on overseas business.

Vice president Randy Coleman told investors in a company earnings conference call last week the European arm of Scotts would be attractive to a "strategic or financial buyer" and preliminary discussions have begun with both after "discussions with a potential partner broke down in early spring".

He added: "I'm confident that our business remains the best in Europe's lawn and garden market place."

The business earned $402.30 million during the quarter, compared to the consensus estimate of $370 million. The businesses revenue for the quarter was up 7.2 per cent compared to the same quarter last year for the period ending 30 September.

Company-wide sales increased four per cent to $2.84 billion, compared to $2.73 billion a year ago, or five per cent excluding the impact of foreign exchange rates.  Sales in the US Consumer segment increased two per cent, to $2.19 billion. Europe Consumer declined 10 percent, or six per cent excluding the impact of foreign exchange rates, to $274.2 million. The "other" segment increased 33 per cent to $374.5 million due to acquisition and growth activity within The Hawthorne Gardening Company, a hydroponics business.

Europe Consumer business sales for the quarter declined to $37.3 million compared to $43.8 million. The company has made the ill-fated purchase of Solus and now has to deal with negotiating price increases with retailers. Sales in the "other" segment increased 70 per cent to $87.2 million.

The UK suffered from the purchase of Solus, but was "flat on an apples for apples basis" Coleman said, other than for Solus. After a "difficult spring", the UK business "recovered to finish in positive territory". Austria, Germany and Poland did better in Europe. Coleman said assuming Scotts exited Europe, it could increase its operating margins to 18 per cent in three years.

The company has sought a European partner all year and has sold its US lawn service business.

Chief executive Jim Hagedorn said: "We continue to explore strategic options for Europe as we maintain our bias that Europe is not a long term priority for us."

He added: "This was an outstanding season and a giant step forward in the execution of our long-term strategic plan. Not only did our core business have an exceptional recovery after weather-related challenges at the peak of the season, we also completed the joint venture between Scotts LawnService and TruGreen, closed on two major hydroponics acquisitions and created a new partnership with Bonnie Plants. As we enter Year Two of ‘Project Focus,’ we will continue with the reconfiguration of our portfolio to add emphasis on our core U.S. consumer business and emerging high-growth opportunities under the Hawthorne Gardening Company umbrella.

"Overall, we remain optimistic about our company-wide growth prospects for 2017 and remain on track to achieve our long-term operating margin goal of 18 per cent."

Company-wide sales increased seven per cent to $402.3 million, or eight per cent excluding the impact of foreign exchange rates. 

"The only area of disappointment in the quarter was related to operating results from our joint venture with TruGreen," Hagedorn said. "Lower-than-expected sales caused a higher level of dilution than we had expected, however, the business remains on track to achieve the cost synergies outlined when the JV was announced."

Coleman added: "Our business has had a solid multi-year run of predictable growth and steady improvement in net income, and we’re confident we’ll see that again in 2017. We expect our core business to continue growing in the low single digits and be supplemented by higher levels of growth from Hawthorne.

"As a result of the recent operating challenges with TruGreen, we are taking a conservative approach in our assumptions related to equity income next year. However, the combination of favorable commodity costs, strong expense control and incremental pricing should continue to support margin improvement and double digit EPS growth in 2017."

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