False Spring For Scotts

The lawn-care giant bets on the wrong CEO and game plan

A year ago, the 126-year-old Scotts Co., the sultan of sod, seemed set for a growth spurt. The Marysville (Ohio) maker of TurfBuilder and other products had an energetic new CEO, Theodore J. Host, a former Coca-Cola Co. marketing whiz. And through a $200 million stock swap, Scotts was merging with Stern's Miracle-Gro Products Inc., the plant-food king. As CEO Tadd C. Seitz, who remained board chairman, stepped aside, he predicted that Scotts would soon be a billion-dollar company.

Instead, Scotts has wilted. In late February, it made an embarrassing adjustment to earnings, dropping them from $25.1 million to $22.4 million on sales of $732.8 million. And on February 23, Host was forced to resign. Seitz, 54, was brought back in as CEO.

What went wrong? For Host, the troubles began as soon as he took the post. First, the Federal Trade Commission held up the merger with Miracle-Gro until Scotts sold off a fertilizer division. That cut into Scotts's expected bottom line. Then urea prices skyrocketed, adding costs. And the blistering Ohio heat wave in July and August turned fertilizer into lumps, gumming up production lines. Scotts wasn't able to meet demand during the key summer months.

WORRIED FAMILY. Host tried to pump up sales during the winter by offering rebates to such retailers as Home Depot Inc. But he underestimated rebate costs. In late February, Scotts had to send an additional $2.7 million to retailers.

Meanwhile, the merger had turned the equivalent of 40% of Scotts's voting stock to Miracle-Gro's owners, principally the Hagedorn family of Port Washington, N.Y. Used to higher margins, they objected to the aggressive rebate program. By early '95, analysts say, the Hagedorns had seen enough. In a statement, Horace Hagedorn, Miracle-Gro's 80-year-old founder, welcomed Seitz back as "a stabilizing force for the company."

The challenge now facing Seitz is to pull back from some of Host's feisty marketing schemes while fixing the production glitches. He must also hammer out a common vision with the Miracle-Gro partners, who are wary of sacrificing profits for market share. It helps that Scotts has about 50% of the market in most of its fertilizer, soil, and seed lines. And Seitz, who first became Scotts' CEO in 1983, has already started on the problems. To avoid fertilizer lumps, for instance, he is air-conditioning factories. He's also looking for a long-term successor. Now, he and his team can only hope for a long, cool summer.

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