SCOTTS MIRACLE-GRO CO Q4 FY2024 earnings call

• Turnaround from Crisis: Cut over $400 million in operating expenses, restructured Hawthorne, and reinvested $100 million in superpowers (brands, sales force, supply chain, innovation). - Fiscal '24 Performance: Achieved adjusted EBITDA growth of 20% to $539 million, top-line consumer growth of 6%, reduced inventory below $600 million, ended debt leverage at 4.86x, and Hawthorne had consecutive quarters of positive EBITDA. - Midterm Priorities: Drive 3% annual growth, deploy $200M+ in advertising, improve gross margin to mid-30s, deliver EBITDA ~$700M, reduce leverage to ~3x by fiscal '27. - Fiscal '25 Focus: Aim for EBITDA $570M-$590M (6%-9% growth from '24), 2% sales growth in consumer, $20M EBITDA from Hawthorne, and increased investments in brands, advertising, and innovation.

Consumer Business: In fiscal '24, U.S. consumer net sales ended 6% higher than prior year, with volume and mix up 7% offset by 1% lower net pricing. POS units were up nearly 9%. Gross margin, excluding inventory write-offs, improved 340 basis points. Adjusted EBITDA grew 20% to $539 million. Hawthorne: Sales declined 46% in Q4 and 37% for the full year, in line with guidance after exiting third-party distribution. Revenue contribution: Consumer business was the primary driver, while Hawthorne's sales were significantly lower post-restructuring.

• Guiding EBITDA for fiscal '25 at $570 million to $590 million, a 6% to 9% increase over 2024's adjusted EBITDA. - Projecting 2% sales growth in the consumer business and $20 million in EBITDA from Hawthorne. - Increasing investments in consumer (over $30 million more in advertising, marketing, etc.) and Hawthorne (incremental $10 million on brand support).

• Weather Impacts: Extended unfavorable weather in the Northeast and Midwest negatively affected the lawn and garden market in fiscal '24. - Consumer Sentiment: Low consumer sentiment has impacted retailers' willingness to absorb price increases, limiting pricing power. - Execution Risks: Dependence on successful execution of supply chain optimizations, M&A activities, and achieving margin targets.

Q: Clarification on top-line guidance for U.S. consumer business, including one-time items like AeroGarden and urea/seed sales.

A: Nate Baxter and Matt Garth discussed one-time items like AeroGarden shutdown and urea/seed sales, noting they net off with investments in 2025.

Q: Margin outlook and path to mid-30s gross margin.

A: Jim Hagedorn and Matt Garth discussed challenges with retailers on pricing, but plan to use sales of high-margin products and cost cuts to reach mid-30s.

Q: Share repurchase activity and leverage target.

A: Matt Garth mentioned focus on debt reduction towards term loans, with plan to consider share repurchases once leverage targets are met.