The Scotts Miracle-Gro Company Q4 FY2025 earnings call

Mission and Execution: Focused on being a safe harbor, high-return equity, executing on mission with strong U.S. consumer sales growth, free cash flow, improved gross margin, reduced leverage, and healthier balance sheet. ### Brand and Strategy: Shifted focus from commodities to branded products, investing activation dollars in branded business, with retailer partnerships driving category growth. ### E-commerce and Innovation: Significant e-commerce expansion, with over 50% increase in e-commerce POS units in fiscal '25; emphasis on organics, natural solutions, and product innovation for e-commerce. ### Hawthorne Divestiture: Progressing with divestiture of Hawthorne, including selling professional horticulture arm and moving towards combining with cannabis entity to position for independent success.

For the quarter, U.S. consumer net sales were $311.2 million, an increase of 3% from volume gains excluding nonrecurring AeroGarden and bulk raw material sales from fiscal '24. For the year, U.S. consumer sales increased 1% to $2.99 billion when excluding nonrecurring fiscal '24 sales. Hawthorne Gardening had full year net sales of $165.8 million, down 44% as the company focused on profitability improvements and divestiture efforts.

Fiscal '26 Guidance: - Expect low single-digit growth in U.S. consumer net sales. - Non-GAAP adjusted gross margin rate of at least 32%. - Non-GAAP adjusted earnings per share $4.15 to $4.35. - Mid-single-digit growth in non-GAAP adjusted EBITDA. - Free cash flow $275 million. - Leverage ratio high 3x.

No specific detailed risks discussed, but general risks include potential differences from forward-looking statements and market-related challenges that could impact results.

Q: Jon Andersen asked about how the lawns strategy fits into the branded focus and synergies.

A: Nate Baxter and John Sass discussed focusing on frequency, new innovation like the Turf Builder line to attract new consumers and increase frequency among existing ones.

Q: Andrew Carter inquired about private label and advertising spend.

A: James Hagedorn and Nate Baxter stated they aren't under private label pressure, refocusing activation dollars on branded products; Nate mentioned targeting 8% advertising spend, currently below 5%, with plans to increase efficiency in digital advertising.

Q: Joe Altobello asked about sales growth outlook.

A: James Hagedorn and Nate Baxter discussed branded growth needing to exceed 5%, with innovation, pricing, and channel expansion contributing to growth.

Q: Jonathan Matuszewski asked about AI and gross margin cadence.

A: Nate Baxter mentioned 2026 as the year to engage consumers with digitized assets; Mark Scheiwer discussed sales shift impact on gross margin and SG&A cadence.

Q: Peter Grom asked about profit trajectory and buyback.

A: James Hagedorn and Mark Scheiwer talked about gross margin building blocks including pricing and cost savings, and plans for a multiyear share buyback program to be presented to the Board for fiscal '26 implementation