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2021 - Is inflation finally back in the conversation?

Reagan1k

By Reagan1k
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The only thing more predictable than the GOP running up huge deficits on tax cuts and military spending, is each one suddenly becoming horrified by deficit spending 5 mins after a Democrat is sworn in

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Cheeseweasel

Cheeseweasel 26437

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Posted
8 minutes ago, Reagan1k said:

Getting cash out of your hands as quickly as possible and converted into something that'll be inflationary - regardless of the actual underlying input costs.

It's a bit of a game of musical chairs. If we hit a recession and the music stops, it's going to hurt bad for those holding inventory. But to Jimmy's point, I don't see the price of a Camry falling any time soon. Those "too big to fail" will once again come out without a scratch.

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Trey3216

Trey3216 15325

Posted
Posted
1 hour ago, Cheeseweasel said:

It's a bit of a game of musical chairs. If we hit a recession and the music stops, it's going to hurt bad for those holding inventory. But to Jimmy's point, I don't see the price of a Camry falling any time soon. Those "too big to fail" will once again come out without a scratch.

We'll just have a "Chinese tanker loaded with vehicle microchips fire" in order to keep the Camry/RAM/F150 prices high even in the face of a recession.   Book it.  

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Hefeweizen

Hefeweizen 5307

Posted
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14 hours ago, Upgrayedd said:

Not sure that deflation is the environment we are looking for

Deflation is not happening.  I am still seeing serious inflation in construction costs which are now up about 40 percent from 2019.  That is going to stick.  Projects get priced based on these bid tabulations, budgets get set, and then money gets spent.  
 

With prices and interest rates continuing to rise there’s going to be a real friction for anything  that is hard to adjust (fixed income for example).  Debt holders are about to get fucked for a while.  Think people who bought 25 year tax free bonds at 2.5 percent.

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Upgrayedd

Upgrayedd 5806

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57 minutes ago, Hefeweizen said:

Deflation is not happening.  I am still seeing serious inflation in construction costs which are now up about 40 percent from 2019.  That is going to stick.  Projects get priced based on these bid tabulations, budgets get set, and then money gets spent.  
 

With prices and interest rates continuing to rise there’s going to be a real friction for anything  that is hard to adjust (fixed income for example).  Debt holders are about to get fucked for a while.  Think people who bought 25 year tax free bonds at 2.5 percent.

Equally sticky is going to be the “deposit to lock in price” that has been utilized lately.  Good luck unwinding that.

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ChickenSandwich

ChickenSandwich 9798

Posted
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1 hour ago, Hefeweizen said:

Deflation is not happening.  I am still seeing serious inflation in construction costs which are now up about 40 percent from 2019.  That is going to stick.  Projects get priced based on these bid tabulations, budgets get set, and then money gets spent.  
 

With prices and interest rates continuing to rise there’s going to be a real friction for anything  that is hard to adjust (fixed income for example).  Debt holders are about to get fucked for a while.  Think people who bought 25 year tax free bonds at 2.5 percent.

Wholesale Inflation has been more than 5% year to year for 17 months straight. We aren’t going back. 

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Cheeseweasel

Cheeseweasel 26437

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8 minutes ago, Snake Diggity said:

Am I wrong to fear that if the primary cause of inflation is supply side (supply chain from COVID/Ukraine and limited labor force) then raising rates will reduce access to capital required to unfuck those factors, making things worse?

Several have pointed out here that the cure seems worse than the disease. I don't disagree. Supply side issues tend to fix themselves via supply/demand. When shit gets too expensive, people repair/fix/do without. I've never been a proponent of messing with the "flow of money" as the Fed likes to. The piper must always be paid.

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washparkhorn

washparkhorn 9935

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Rate hikes are a blunt tool with spill over effects - and disinflationary. Cathie Wood and Elon Musk are warning of deflation with the rate hikes (Wood’s argument on the collapse of used car values is interesting).  The inverted 2/30 yield curve signals a recession in 6-9 months. 

From a monetary perspective, deflation is more difficult to control than inflation. The Fed knows this.

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Not a cat

Not a cat 5620

Posted
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55 minutes ago, washparkhorn said:

Rate hikes are a blunt tool with spill over effects - and disinflationary. Cathie Wood and Elon Musk are warning of deflation with the rate hikes (Wood’s argument on the collapse of used car values is interesting).  The inverted 2/30 yield curve signals a recession in 6-9 months. 

From a monetary perspective, deflation is more difficult to control than inflation. The Fed knows this.

Is it though?  Isn't the simple solution to deflation the old dumping money from a helicopter?

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Humble Beast

Humble Beast 258

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Posted
11 minutes ago, washparkhorn said:

It doesn't always work.

Why would a purchaser buy today when it will be cheaper tomorrow? See Japan 1990’s to 2000’s. It leads to a deflarionary spiral:

2473EBFD-3F39-4889-B321-E94EBAA0B063.jpeg.f188205bed239402537e4f0ad379907b.jpeg

 

Did Japan ever do helicopter money? If they did, certainly not to the level of effectiveness that could be achieved now. Electronic airdrops. 

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Humble Beast

Humble Beast 258

Posted
Posted
Just now, bernorange said:

We have been following their lead.  Abenomics = mucho money brrt, nirp and fiscal policy by drunk sailor.

Agreed. But the difference now is if we had crippling deflation the Fed/USG could direct deposit thousands of dollars in the bank accounts of every taxpayer in America. It wouldn’t have to filter through any other mechanisms. 

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Humble Beast

Humble Beast 258

Posted
Posted
2 hours ago, washparkhorn said:

Recession was always anticipated when J Pow turned into a hawk. The question became whether the US would have a soft oe hard landing. Data now suggests a hard landing. 

FedEx and 2 year are harvingers of a hard landing - globally. 

Yep FedEx getting rekt. Pulled guidance for next year. Demand went off a cliff in August evidently. 
 

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TxTower

TxTower 650

Posted
Posted
This is great. Let post graphs with no discussion.
Post editorials with no defense.
Post simple ass graphics to push people to one side.
Have jackasses cover Conservatism
Lovely
Bubbling out the mouth "NO SEEEEEEARRRRRRR"

Looks like someone’s run out of Vagisil again. Must be those darn supply chains.


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Humble Beast

Humble Beast 258

Posted
Posted
25 minutes ago, StassneyHorn said:

When you post Greg Davis pass plays as Econ graphs, that still show growth, and provide no commentary you will get my sass

You want me to explain it like you wear a mask outside? Fine. 
 

GDP now is the GDP forecast of the Atlanta Fed. It’s updated with economic data releases and often deviates from wall st estimates. I’ve seen analyses before that show that it’s more accurate than St forecasts. The fact that it’s trending down and potentially going negative for the third quarter in a row is noteworthy and worth tracking imo. 

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troph

troph 24563

Posted
Posted
On 9/14/2022 at 1:59 PM, Reagan1k said:

Based on my observations / experiences, a lot of the inflation I've seen is protective in theory at the quotation level, but becomes very sticky once a PO is cut.

It doesn't take getting burned too many times before I throw on some lagniappe into your price with the idea that it'll cover me if I get whipsawed.  The fact that 10-20% of that price was lagniappe is easy to forget when the PO comes in and I don't go back and true-up based on factual pricing.

Holy shit, I can't believe they bought this.........instead of .........Hey, that price has some fluff in it I can trim out now.

That's the nature of a true inflationary spiral.  Getting cash out of your hands as quickly as possible and converted into something that'll be inflationary - regardless of the actual underlying input costs.

This is one of the most thoughtful posts I’ve read here. 

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washparkhorn

washparkhorn 9935

Posted
Posted
On 9/17/2022 at 10:36 AM, TxTower said:

Goldman and others are cutting their growth forecasts for next year. Stagflation now a real possibility.

Missing the third leg of the stagflation triad: high unemployment. 
 

Yield curve is signaling recession in 2023. FedEx data concurs. Fed prefers recession to soaring inflation. 

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Hefeweizen

Hefeweizen 5307

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Yeah the big question is does inflation slow quickly enough that the rate hikes don’t get overdone?  And I really wonder how much longer supply chain issues persist.  Because it’s anecdotal but I still see them in a ton of things in my business.  Pipe, pumps, electrical gear, control panels.  It is all fucked still.

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Incredulity

Incredulity 11555

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Posted (edited)

https://www.wsj.com/articles/scotts-miracle-gro-shortage-glut-inventory-fertilizer-11663261193

Quote

Never in the modern global economy have businesses seen such a rapid shift from shortage to glut.

 

The inventory whipsaw is coming fast for those that aren't already experiencing it.

Spoiler

Never in the modern global economy have businesses seen such a rapid shift from shortage to glut.

Jim Hagedorn says he is lucky it didn’t get him fired.

Just months ago, the chief executive of Scotts Miracle-Gro Co. SMG 1.43%▲ was bracing for the biggest summer ever. After two years of struggling to fill store shelves, the company had ramped up production to catch up with consumer demand for lawn seed, fertilizer and other garden products. Investments in new manufacturing capacity were paying off as the 67-year-old CEO prepared for the usual rush of May orders from retailers looking to replenish their stocks.

The orders never came, and by Memorial Day, Mr. Hagedorn knew his company was in trouble. Scotts has already cut about 450 jobs, or around 6% of its workforce, since May, and more layoffs are coming. Manufacturing plants have been slowed. Cash is dwindling. Nobody is getting bonuses. Instead, the company is in full-blown crisis mode.

“I love working, but this isn’t exactly the s—hole I was planning to live in toward the end of my career, working my way out of a goddamn latrine,” Mr. Hagedorn said. “But that’s what it is and that’s where I am.”

Versions of this story are playing out across business sectors, where makers of everything from clothing to kitchen appliances have gone from trying to catch up to demand to buckling under the weight of their own inventory, in a matter of weeks. Now many companies are cutting jobs, idling plants and working to undo many of the other steps they took to ensure they would have enough products to sell.

Scotts, Mr. Hagedorn said, was largely a casualty of bloated inventory at big retailers like Walmart Inc., Target Corp. and Home Depot Inc. Those companies didn’t foresee the sharp reversal in buying behavior that has taken place in recent months as shoppers, squeezed by inflation, cut back on furniture, electronics and other goods and shifted spending to travel, food and fuel.

 
?width=1260&height=840

Scotts’ Chief Executive Jim Hagedorn at the company’s headquarters.

Newell Brands Inc., the maker of Yankee candles and Sharpie markers, said that in a span of six weeks starting in early August, it went from being comfortable with its retailer stocks to cutting its sales and cash-flow forecasts for the year after chains slashed orders. “A number of our top retailers have chosen to make a more dramatic inventory reduction certainly than we expected,” Christopher Peterson, the chief financial officer, said at an investor conference this month.

Scotts was in the middle of its active selling season when Covid-19 shut down much of the global economy. Early in the pandemic, the company’s manufacturing operations were deemed essential because fertilizer is important to the food supply and most retail stores that sold such products also remained open.

Production was chaotic. Scotts began paying workers a 50% premium, but entire shifts would typically be sent home if someone got sick. Scotts changed from three eight-hour shifts to two 12-hour shifts to use available workers as much as possible.

It soon became clear that homebound families or those fleeing cities would garden more than ever before. Stores had already been stocked for spring when Covid-19 arrived, but keeping shelves filled soon became a problem. When the quarter closed at the end of June 2020, sales in the consumer business, which make up around two-thirds of the company’s total revenue, were up more than 20%. Empty shelves indicated Scotts could have sold even more.

“Our best guess is that we missed about $200 million in sales because we just couldn’t deliver,” Mr. Hagedorn said. “We picked up 10 years of growth in a year, that first year of Covid.”

Scotts typically builds inventory in the fall and winter in preparation for spring, its peak season. More than three quarters of sales in the North America consumer business come in the first six months of the calendar year.

 

By the next spring, in April 2021, Mr. Hagedorn told investors that the rapid sales growth meant inventory was below an acceptable level, which meant leaving sales on the table and frustrating retailers. Still, consumer sales rose more than 10% in fiscal 2021, which ended Sept. 30.

Meanwhile, Scotts had been investing rapidly in a multiyear project to expand production—a major shift from the conservative, slow-and-steady model it had held for decades. Its Marysville, Ohio, headquarters, where Scotts was founded in 1868, got upgraded packaging and processing equipment, along with new control systems. In other facilities, Scotts added new equipment, including expanding the capabilities of some locations with new mixing lines.

Capital expenditure in the consumer business almost doubled to $52 million in 2020 and rose to $78 million in 2021, according to S&P Global Market Intelligence.

By November 2021, the company’s chief financial officer assured investors Scotts was in a good place on inventory. The company set conservative expectations for 2022, forecasting that consumer unit sales would fall because of strong year-ago comparisons, but that price increases would offset the decline. At the end of December, total inventory was up 55% to $1.7 billion, almost doubling its pre-pandemic level.

im-622938?height=900
im-622936?height=900
Greenhouses at Scotts, and Daisy D'Angelo, a scientist studying compost.

In early May, when Scotts delivered its fiscal second-quarter results, it said spring rain had clipped some sales, but that consumer demand was strong. The company was optimistic that the usual parade of May reorders would come but warned that it might have excess inventory.

By the middle of the month, it was becoming clear those orders weren’t coming.

Clearing the aisles
 

Scotts asked stores why they reduced orders and learned they planned to carry lighter stock.

They had stocked up on merchandise of all sorts before realizing that consumer spending patterns shifted as the pandemic eased, leaving them with bloated inventory that would take months to whittle down. So instead of having large piles of fertilizer at the front of the stores or aisle ends, the stores wanted to use that space to clear out other merchandise. Scotts said there was no warning that the order change was coming.

Retailer orders were more than $300 million below expectations for May. “By Memorial Day, it was like, turn everything off immediately. We need to preserve money,” Mr. Hagedorn said.

The big jump in inventory tied up cash—as of the end of June, Scotts had just $28 million in cash, down from $244 million at the same time last year.

Over the summer, the company has slowed some manufacturing, closed some distribution centers and made changes to other facilities to make them more flexible to demand. A lighting manufacturing facility from Washington state was merged into an existing plant in California. If needed, workers there can now work on lighting fixtures for half a day and then spend the other half assembling lawn seed spreaders.

The existing fertilizer inventory won’t spoil so it can be sold off into next season, and the company doesn’t plan to cut prices to move it.

Mr. Hagedorn has pledged that more job cuts are coming, and along with the cuts that began in May the company hasn’t filled open positions.

 

“We are tightening our belts severely,” he said, adding: “I’m probably overcorrecting.”

Third-quarter results in early August showed a bleak outlook—consumer sales for the year were now expected to be down 8% to 9%.

Scotts also reported a net loss related to its nonconsumer business, which is mostly made up of its Hawthorne segment. The unit sells equipment and supplies for the cannabis growing industry. Scotts bought up smaller companies for years and saw rapid sales growth, but expects revenue to drop this year because of what it calls market saturation.

Scotts is using fiscal 2019 as a rough guide for budgeting and financial planning, Mr. Hagedorn said, and rethinking its strategy in the face of inflation and the risk of recession.

It’s stockpiling some raw materials to hedge against price increases. A ton of urea, the basic building block of fertilizer, has been costing around $500, down from $900 earlier this year but twice the $250 it cost at the beginning of the pandemic. Analysts are warning that natural-gas shortages in Europe could cause urea prices to spike again, so Scotts has been buying as much as it can. It has set up a temporary rail yard near its Marysville headquarters to hold cargo cars full of urea.

Scotts’ shares, around $120 just before the pandemic, are now trading around $56—after peaking at more than $250 in March 2021.

“Our ability to absorb a lot of shots in the business is very high,” Mr. Hagedorn said. “It’s just, when everything goes against you, it eats you alive.”

Family business

Mr. Hagedorn joined the family business in 1987 after seven years of flying F-16s in the Air Force. His father, Horace, had co-founded Miracle-Gro in the 1950s, and the plant-food company quickly capitalized on the surging demand for garden products that came with the post-World War II home-building boom. He sold his business to Scotts Co. for $200 million in 1995 in a deal that made the Hagedorns the largest shareholders of the combined company. Six years later, Jim Hagedorn was named CEO.

Blunt and loud, Mr. Hagedorn has a bald head, gray goatee and salty tongue. He speaks fast, prefers video calls instead of the phone and regularly walks around headquarters talking to employees.

Three times a week, he wakes at 3 a.m. and flies his own plane from the East Coast to the Marysville offices. After hitting the gym, he is in the office by 7:30 a.m., usually with his German shepherds, who join him in the plane. The dogs roam the office, and some workers keep treats for them on their desks.

The Hagedorn family controls more than 25% of the company’s shares. Mr. Hagedorn’s sister, Katherine, sits on the board, his son Christopher is a division president and his son Nicholas works as a government-affairs analyst.

Raymond James analyst Joe Altobello said Scotts could have done a better job of forecasting and that it was slow to respond. While the drop in consumer sales by unit was “pretty much what we expected coming into this year,” the fact that retailers weren’t reordering “was the big difference,” he said. “They got caught flat-footed.”

Scotts said its forecasts were accurate until a sudden shift in retailer orders in late April and early May.

?width=1260&height=840

The warehouse at Scotts. ‘By Memorial Day, it was like, turn everything off immediately. We need to preserve money,’ said Mr. Hagedorn.

Scotts’ decision to produce so much inventory at a time when retailers were overstocked with durable goods may have made it easier for the retailers to reduce their orders, said Andrew Carter, analyst with Stifel, an investment bank. Big-ticket items like grills take longer to sell down, he said, but lawn and garden goods should move faster.

If the retailers know that Scotts can quickly resupply them, it makes sense to carry fewer weeks of that inventory. “They put themselves in a position where they were a pretty easy target,” Mr. Carter said.

Scotts promotes three-day delivery as part of its sales pitch to big retailers.

Last month, Walmart, Target and Home Depot reported their collective second-quarter inventory jumped $20 billion from a year ago, meaning the stores are still working to sell their current stock.

Home Depot and Lowes Cos., which together accounted for about 40% of Scotts’ fiscal 2021 sales, also said last month that the weather in many parts of the country reduced demand for products like fertilizer, which had been one of the biggest sales categories in the previous two years.

?width=1260&height=840

Dylan Sedmak, left, and Mitch Mannarino measured and recorded the height of plants at Scotts this month.

In late August, Scotts said full-year cash flow would be negative $275 million to $325 million, compared with a projection of negative $150 million in early August. The company also disclosed that its finance chief, Cory Miller, had left the company. Board member David Evans took the interim role as it seeks external candidates for a replacement.

Mr. Hagedorn wants the company to get back to its roots.

On this office wall there is a framed 1996 article from The Wall Street Journal about the family’s takeover and their “remolding Scotts to reflect their own thrifty, entrepreneurial ways.” He said his current mission to cut costs and keep the company leaner in terms of inventory and debt is to return to those ways.

 

Edited by Incredulity
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babysdaddy

babysdaddy 2718

Posted
Posted
21 minutes ago, Incredulity said:

https://www.wsj.com/articles/scotts-miracle-gro-shortage-glut-inventory-fertilizer-11663261193

 

The inventory whipsaw is coming fast for those that aren't already experiencing it.

  Hide contents

Never in the modern global economy have businesses seen such a rapid shift from shortage to glut.

Jim Hagedorn says he is lucky it didn’t get him fired.

Just months ago, the chief executive of Scotts Miracle-Gro Co. SMG 1.43%▲ was bracing for the biggest summer ever. After two years of struggling to fill store shelves, the company had ramped up production to catch up with consumer demand for lawn seed, fertilizer and other garden products. Investments in new manufacturing capacity were paying off as the 67-year-old CEO prepared for the usual rush of May orders from retailers looking to replenish their stocks.

The orders never came, and by Memorial Day, Mr. Hagedorn knew his company was in trouble. Scotts has already cut about 450 jobs, or around 6% of its workforce, since May, and more layoffs are coming. Manufacturing plants have been slowed. Cash is dwindling. Nobody is getting bonuses. Instead, the company is in full-blown crisis mode.

“I love working, but this isn’t exactly the s—hole I was planning to live in toward the end of my career, working my way out of a goddamn latrine,” Mr. Hagedorn said. “But that’s what it is and that’s where I am.”

Versions of this story are playing out across business sectors, where makers of everything from clothing to kitchen appliances have gone from trying to catch up to demand to buckling under the weight of their own inventory, in a matter of weeks. Now many companies are cutting jobs, idling plants and working to undo many of the other steps they took to ensure they would have enough products to sell.

Scotts, Mr. Hagedorn said, was largely a casualty of bloated inventory at big retailers like Walmart Inc., Target Corp. and Home Depot Inc. Those companies didn’t foresee the sharp reversal in buying behavior that has taken place in recent months as shoppers, squeezed by inflation, cut back on furniture, electronics and other goods and shifted spending to travel, food and fuel.

 
?width=1260&height=840

Scotts’ Chief Executive Jim Hagedorn at the company’s headquarters.

Newell Brands Inc., the maker of Yankee candles and Sharpie markers, said that in a span of six weeks starting in early August, it went from being comfortable with its retailer stocks to cutting its sales and cash-flow forecasts for the year after chains slashed orders. “A number of our top retailers have chosen to make a more dramatic inventory reduction certainly than we expected,” Christopher Peterson, the chief financial officer, said at an investor conference this month.

Scotts was in the middle of its active selling season when Covid-19 shut down much of the global economy. Early in the pandemic, the company’s manufacturing operations were deemed essential because fertilizer is important to the food supply and most retail stores that sold such products also remained open.

Production was chaotic. Scotts began paying workers a 50% premium, but entire shifts would typically be sent home if someone got sick. Scotts changed from three eight-hour shifts to two 12-hour shifts to use available workers as much as possible.

It soon became clear that homebound families or those fleeing cities would garden more than ever before. Stores had already been stocked for spring when Covid-19 arrived, but keeping shelves filled soon became a problem. When the quarter closed at the end of June 2020, sales in the consumer business, which make up around two-thirds of the company’s total revenue, were up more than 20%. Empty shelves indicated Scotts could have sold even more.

“Our best guess is that we missed about $200 million in sales because we just couldn’t deliver,” Mr. Hagedorn said. “We picked up 10 years of growth in a year, that first year of Covid.”

Scotts typically builds inventory in the fall and winter in preparation for spring, its peak season. More than three quarters of sales in the North America consumer business come in the first six months of the calendar year.

 

By the next spring, in April 2021, Mr. Hagedorn told investors that the rapid sales growth meant inventory was below an acceptable level, which meant leaving sales on the table and frustrating retailers. Still, consumer sales rose more than 10% in fiscal 2021, which ended Sept. 30.

Meanwhile, Scotts had been investing rapidly in a multiyear project to expand production—a major shift from the conservative, slow-and-steady model it had held for decades. Its Marysville, Ohio, headquarters, where Scotts was founded in 1868, got upgraded packaging and processing equipment, along with new control systems. In other facilities, Scotts added new equipment, including expanding the capabilities of some locations with new mixing lines.

Capital expenditure in the consumer business almost doubled to $52 million in 2020 and rose to $78 million in 2021, according to S&P Global Market Intelligence.

By November 2021, the company’s chief financial officer assured investors Scotts was in a good place on inventory. The company set conservative expectations for 2022, forecasting that consumer unit sales would fall because of strong year-ago comparisons, but that price increases would offset the decline. At the end of December, total inventory was up 55% to $1.7 billion, almost doubling its pre-pandemic level.

im-622938?height=900
im-622936?height=900
Greenhouses at Scotts, and Daisy D'Angelo, a scientist studying compost.

In early May, when Scotts delivered its fiscal second-quarter results, it said spring rain had clipped some sales, but that consumer demand was strong. The company was optimistic that the usual parade of May reorders would come but warned that it might have excess inventory.

By the middle of the month, it was becoming clear those orders weren’t coming.

Clearing the aisles
 

Scotts asked stores why they reduced orders and learned they planned to carry lighter stock.

They had stocked up on merchandise of all sorts before realizing that consumer spending patterns shifted as the pandemic eased, leaving them with bloated inventory that would take months to whittle down. So instead of having large piles of fertilizer at the front of the stores or aisle ends, the stores wanted to use that space to clear out other merchandise. Scotts said there was no warning that the order change was coming.

Retailer orders were more than $300 million below expectations for May. “By Memorial Day, it was like, turn everything off immediately. We need to preserve money,” Mr. Hagedorn said.

The big jump in inventory tied up cash—as of the end of June, Scotts had just $28 million in cash, down from $244 million at the same time last year.

Over the summer, the company has slowed some manufacturing, closed some distribution centers and made changes to other facilities to make them more flexible to demand. A lighting manufacturing facility from Washington state was merged into an existing plant in California. If needed, workers there can now work on lighting fixtures for half a day and then spend the other half assembling lawn seed spreaders.

The existing fertilizer inventory won’t spoil so it can be sold off into next season, and the company doesn’t plan to cut prices to move it.

Mr. Hagedorn has pledged that more job cuts are coming, and along with the cuts that began in May the company hasn’t filled open positions.

 

“We are tightening our belts severely,” he said, adding: “I’m probably overcorrecting.”

Third-quarter results in early August showed a bleak outlook—consumer sales for the year were now expected to be down 8% to 9%.

Scotts also reported a net loss related to its nonconsumer business, which is mostly made up of its Hawthorne segment. The unit sells equipment and supplies for the cannabis growing industry. Scotts bought up smaller companies for years and saw rapid sales growth, but expects revenue to drop this year because of what it calls market saturation.

Scotts is using fiscal 2019 as a rough guide for budgeting and financial planning, Mr. Hagedorn said, and rethinking its strategy in the face of inflation and the risk of recession.

It’s stockpiling some raw materials to hedge against price increases. A ton of urea, the basic building block of fertilizer, has been costing around $500, down from $900 earlier this year but twice the $250 it cost at the beginning of the pandemic. Analysts are warning that natural-gas shortages in Europe could cause urea prices to spike again, so Scotts has been buying as much as it can. It has set up a temporary rail yard near its Marysville headquarters to hold cargo cars full of urea.

Scotts’ shares, around $120 just before the pandemic, are now trading around $56—after peaking at more than $250 in March 2021.

“Our ability to absorb a lot of shots in the business is very high,” Mr. Hagedorn said. “It’s just, when everything goes against you, it eats you alive.”

Family business

Mr. Hagedorn joined the family business in 1987 after seven years of flying F-16s in the Air Force. His father, Horace, had co-founded Miracle-Gro in the 1950s, and the plant-food company quickly capitalized on the surging demand for garden products that came with the post-World War II home-building boom. He sold his business to Scotts Co. for $200 million in 1995 in a deal that made the Hagedorns the largest shareholders of the combined company. Six years later, Jim Hagedorn was named CEO.

Blunt and loud, Mr. Hagedorn has a bald head, gray goatee and salty tongue. He speaks fast, prefers video calls instead of the phone and regularly walks around headquarters talking to employees.

Three times a week, he wakes at 3 a.m. and flies his own plane from the East Coast to the Marysville offices. After hitting the gym, he is in the office by 7:30 a.m., usually with his German shepherds, who join him in the plane. The dogs roam the office, and some workers keep treats for them on their desks.

The Hagedorn family controls more than 25% of the company’s shares. Mr. Hagedorn’s sister, Katherine, sits on the board, his son Christopher is a division president and his son Nicholas works as a government-affairs analyst.

Raymond James analyst Joe Altobello said Scotts could have done a better job of forecasting and that it was slow to respond. While the drop in consumer sales by unit was “pretty much what we expected coming into this year,” the fact that retailers weren’t reordering “was the big difference,” he said. “They got caught flat-footed.”

Scotts said its forecasts were accurate until a sudden shift in retailer orders in late April and early May.

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The warehouse at Scotts. ‘By Memorial Day, it was like, turn everything off immediately. We need to preserve money,’ said Mr. Hagedorn.

Scotts’ decision to produce so much inventory at a time when retailers were overstocked with durable goods may have made it easier for the retailers to reduce their orders, said Andrew Carter, analyst with Stifel, an investment bank. Big-ticket items like grills take longer to sell down, he said, but lawn and garden goods should move faster.

If the retailers know that Scotts can quickly resupply them, it makes sense to carry fewer weeks of that inventory. “They put themselves in a position where they were a pretty easy target,” Mr. Carter said.

Scotts promotes three-day delivery as part of its sales pitch to big retailers.

Last month, Walmart, Target and Home Depot reported their collective second-quarter inventory jumped $20 billion from a year ago, meaning the stores are still working to sell their current stock.

Home Depot and Lowes Cos., which together accounted for about 40% of Scotts’ fiscal 2021 sales, also said last month that the weather in many parts of the country reduced demand for products like fertilizer, which had been one of the biggest sales categories in the previous two years.

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Dylan Sedmak, left, and Mitch Mannarino measured and recorded the height of plants at Scotts this month.

In late August, Scotts said full-year cash flow would be negative $275 million to $325 million, compared with a projection of negative $150 million in early August. The company also disclosed that its finance chief, Cory Miller, had left the company. Board member David Evans took the interim role as it seeks external candidates for a replacement.

Mr. Hagedorn wants the company to get back to its roots.

On this office wall there is a framed 1996 article from The Wall Street Journal about the family’s takeover and their “remolding Scotts to reflect their own thrifty, entrepreneurial ways.” He said his current mission to cut costs and keep the company leaner in terms of inventory and debt is to return to those ways.

 

“I love working, but this isn’t exactly the s—hole I was planning to live in toward the end of my career, working my way out of a goddamn latrine,” Mr. Hagedorn said. “But that’s what it is and that’s where I am.”

Love this guy

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washparkhorn

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1 hour ago, Hefeweizen said:

And I really wonder how much longer supply chain issues persist.  Because it’s anecdotal but I still see them in a ton of things in my business.  Pipe, pumps, electrical gear, control panels.  It is all fucked still.

Global supply chain pressure remains elevated, but easing according to Fed Stats:

6081DB0D-3683-4B64-81FC-93280E97095C.thumb.jpeg.5b9dc5286e789188dd97e4a76baa5eff.jpeg

https://www.newyorkfed.org/research/policy/gscpi#/overview

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