Scotts Miracle-Gro Earnings Call: Optimism Amid Challenges

Scotts Miracle-Gro ((SMG)) has held its Q2 earnings call. Read on for the main highlights of the call.

The recent earnings call for Scotts Miracle-Gro painted a generally positive picture, despite some challenges. The company highlighted significant progress in gross margin recovery, market share gains, and a reduction in leverage. While there were declines in net sales and Hawthorne’s performance, the overall sentiment remained optimistic due to strong consumer takeaway, effective cost reduction strategies, and reaffirmed guidance.

Reaffirmed Full Year Guidance

Scotts Miracle-Gro reaffirmed its full-year guidance, projecting EBITDA between $570 million and $590 million. The company does not anticipate any impact on margins or pricing from tariffs in fiscal ’25, which underscores their confidence in navigating current economic conditions.

Strong Consumer Takeaway and Market Share Gains

The company reported double-digit increases in consumer takeaway and market share gains, maintaining strong momentum despite macroeconomic volatility. This positive consumer response is a testament to the company’s effective marketing and product strategies.

Substantial Gross Margin Recovery

Scotts Miracle-Gro achieved a nearly 500 basis point recovery in gross margin and a $36 million EBITDA increase in the first half of the fiscal year. This recovery is attributed to lower material costs and an improved product mix.

Positive Developments in Lawn Business

The lawn business saw a 4% increase in POS units, with Turf Builder Halts up 67%. The company’s strategies to promote multi-bag purchases and regular feedings are beginning to show success, contributing to these positive results.

Successful Transformation and Cost Reduction

The company is on track to achieve more than $75 million in supply chain cost reductions this year, with a larger goal of $150 million by fiscal ’27. These efforts are part of a broader transformation strategy aimed at enhancing operational efficiency.

Hawthorne’s Positive EBITDA Performance

Hawthorne delivered two consecutive EBITDA-positive quarters, indicating improvements in the cannabis sector’s balance. This performance is a positive sign for the segment, despite ongoing challenges.

Reduction in Leverage

Scotts Miracle-Gro reduced its leverage to 4.41 times net debt to adjusted EBITDA, comfortably below the covenant maximum of 5.25. This reduction reflects the company’s commitment to maintaining a strong financial position.

Decline in Net Sales

The company reported a 7% decline in total net sales for the quarter, with U.S. consumer net sales down 5% and Hawthorne net sales down 51%. This decline is attributed to continued softness in the hydroponic market and strategic exits from low-margin third-party distribution.

Increased SG&A Expenses

SG&A expenses increased by 5% for the quarter and 7% year-to-date. This rise is due to higher performance-based incentive accruals and investments in brands and technology, reflecting the company’s focus on long-term growth.

Forward-Looking Guidance

Despite a 7% decline in net sales for the second quarter, Scotts Miracle-Gro remains confident in its financial outlook. The company projects EBITDA between $570 million and $590 million, driven by strong performance in the garden and mulch segments. The company aims to achieve a gross margin rate above 35% by the fiscal year-end, supported by strategic cost savings and promotional activities.

In summary, the earnings call for Scotts Miracle-Gro was marked by an optimistic outlook, despite some challenges in sales and specific segments. The company’s reaffirmed guidance, strong consumer takeaway, and substantial margin recovery were key highlights. As Scotts Miracle-Gro continues to focus on cost reduction and market share gains, it remains well-positioned for future growth.