The Scotts Miracle-Gro Company Q3 FY2025 earnings call

Management Statement and Operational Highlights:

• Jim Hagedorn: Discussed company performance, noting delivery on key financial metrics, 2% market share gain, POS units up 8% YTD. Outlined transformation efforts, shifting focus outward to engage new consumers. Highlighted lawns business progress, with Midwest region POS units up 16%, and emphasis on retailer partnerships. Mentioned Hawthorne divestiture progress, aiming for Q4 completion.
• Mark Scheiwer: Reviewed financial results, noting strong gross margin improvement (non-GAAP adjusted gross margin ~32.1% in Q3, on track for 30% full year). EBITDA improved, leverage down to 4.15x net debt to adjusted EBITDA. Discussed future plans, including pricing negotiations for fiscal '26 and continued investment in technology and marketing to drive growth.

Segment Performance:

• U.S. Consumer Business: Q3 net sales were $1.03 billion vs $1.02 billion prior year, up 1% (excluding nonrecurring sales, up 2%). YTD U.S. consumer net sales were $2.68 billion, down 1% vs prior year but up 1% excluding nonrecurring sales. POS units were up 6% in Q3 and 8% YTD. E-commerce sales YTD up 24%, now ~10% of total POS dollars. Categories: soils +12% YTD, mulch +8% YTD, controls +3% YTD, grass seed +16% YTD, branded lawn fertilizers reversed multiyear downward trend.
• Hawthorne: Q3 net sales $31 million vs $68 million prior year, YTD $116 million vs $214 million prior year. Hawthorne has been profitable for 3 quarters YTD, with adjusted EBITDA ~$6 million.
• Total Company: Q3 net sales $1.19 billion vs $1.2 billion prior year, YTD $3.03 billion vs $3.14 billion prior year, decline due to lower Hawthorne sales and nonrecurring sales in prior year.

Guidance:

• Reaffirmed fiscal '25 guidance for U.S. consumer sales, gross margin, EBITDA, EPS, free cash flow, and leverage.
• Planning to negotiate pricing for fiscal '26, with transformation work shifting outward to engage new consumers through digital experiences, e-commerce, and tailored messaging.
• Internal transformation includes investment in technology, AI tools, and automation for operational efficiencies.

Risks:

• Market Volatility: Macroeconomic uncertainty and retailer inventory adjustments could impact sales.
• Private Label Competition: Potential challenges from retailer private label initiatives.
• Weather Impact: Weather patterns (e.g., late spring in Northeast, cold/rain in Texas) can affect sales, though the company has strategies to navigate unpredictability.

Question and Answer: Q: Eric Bosshard on price and price mix in '25 and strategy for '26 A: Nate Baxter said '25 pricing was just under 1.5%, reinvested into activation; '26 still looking at pricing, will reinvest some dollars but focus on activation with retailers. Mark Scheiwer added expectations for mix and price held in line with guidance, with Miracle-Gro Organics innovation aiding volume.

Q: Jon Anderson on retail programs and margins A: James S. Hagedorn discussed activation dollars and retailer partnerships, noting programs work and those not participating may not get access. Mark Scheiwer on margins said gross margin improvement continues, with supply chain savings and pricing driving progress towards mid-30s in future years.

Q: Chris Carey on lawns business A: James S. Hagedorn praised lawns business progress, with Midwest region showing strong results, and emphasis on innovation and retailer partnerships to drive growth. Nathan E. Baxter added lawns has high potential with low household penetration.

Q: Peter Grom on gross margin and future A: Mark Scheiwer explained gross margin bridge with 100 basis points from cost savings and price each year, with confidence in overperforming supply chain and progress towards 35% gross margin in future years