The Scotts Miracle-Gro Company Q1 FY2026 earnings call

James S. Hagedorn focused on strategies to drive shareholder value, new long-term financial priorities through 2030. He mentioned the company's superpowers like brands, R&D, etc., and investments in innovation, advertising, etc. Nate Baxter outlined a three-stage execution approach, including work on 2026 guidance, midterm priorities, and longer-term goals. He discussed innovation across categories, channel expansion, M&A plans, and brand investments. Mark J. Scheiwer discussed the divestiture of Hawthorne as a discontinued operation, updated POS reporting, gross margin expansion due to Hawthorne divestiture, and financial results including top-line sales and bottom-line performance.

Total company net sales excluding Hawthorne were $354.4 million in the first quarter. US consumer sales were $328.5 million. GAAP gross margin rate was 25%, up 90 basis points year over year. Non-GAAP adjusted gross margin rate was 25.4%, compared with 24.5% in the prior year. SG&A for the quarter decreased 7% to $106 million. Non-GAAP adjusted EBITDA for the quarter was $3 million ahead of expectations. Interest expense was $27.2 million, down 20% from 2025. Leverage ended the quarter at 4.03 times net debt to adjusted EBITDA, down from 4.52 times in 2025. Free cash flow was favorable by $78 million. GAAP net loss from continuing operations was $47.8 million or $0.83 per share, versus $66.1 million or $1.15 per share in the prior year. Non-GAAP adjusted loss was $44.6 million or $0.77 per share, versus $50.2 million or $0.88 per share in the prior year.

Fiscal 2026 guidance includes US consumer net sales growth of low single digits, non-GAAP adjusted gross margin rate of at least 32%, non-GAAP adjusted earnings from continuing operations per share range of $4.15 to $4.35 per share, non-GAAP adjusted EBITDA growth of mid-single digits, and free cash flow of $275 million driving leverage ratio down to the high threes. There are more aggressive longer-term targets to reach incremental $1 billion in top-line sales and $1 billion in total EBITDA around 2030 with 5% annual top-line growth through innovation, pricing, volume, and modest M&A.

Potential market volatility, weather affecting sales patterns, challenges in integrating M&A activities, and uncertainties related to achieving long-term growth targets.

Q: Great. Thank you, operator. Good morning, everybody. Maybe just going back to some of the original commentary around the work the team has been doing and I know we are going to get a lot more details at the Investor Day this summer. But the high degree of confidence that you can outperform the guidance this year. You maybe just talk about what is driving that? Or where you have increased confidence and visibility sales, margin, both at? You sounded quite optimistic. So any color, I think, would be helpful.

A: Sure. Good to talk to you Peter. This is Mark Scheiwer. I will start with some of the bottom line confidence and then I will let Jim and Nate speak to some of the top line as they see it, as they work with the operators. You will see in the gross margin line, obviously, we announced the Hawthorne divestiture. So that, as Jim alluded to, provided 40 basis points of benefit on a full-year basis. In addition, given our track record and some of our planning as we have gotten further into the year, we feel comfortable as we navigate that you know, we should be able to outperform 32% as a number. So I feel, you know, as we guide further in the year, we will give our customary update after the second quarter. And we can provide a little more refined guidance around call it, margin. You did also see some good performance on interest expense down below the line as folks are navigating and managing cash flow really well. So I feel really good about how the team is navigating free cash flow on that side. And then just from my perspective on the finance side, on the top line, you know, as far as consensus and where we landed versus sales and what we have about on the last quarter call, you know, sales from retailers, it is a big load-in quarter for the quarter. And we saw really good positive momentum there. As we navigated the quarter. Maybe that exceeded some of our expectations initially at year-end.

Q: Hi. Good morning, everybody. Hey. Morning. Morning, Chris. So I I guess I sent some positive you know, early signs of, you know, retailer shipments both in the quarter and and perhaps even even quarter to date I believe the year is set up to be a bit more back half weighted from a growth standpoint. Can you just give us a sense of whether the early activity has evolved your view about, you know, the the the phasing through the year the timing of inventory loads? Or are these just weeks too small to read too much into and you are kind of still thinking the same thing? May maybe just give us a sense of how you are your thought process on on the cadence know, has has evolved through the year. And I guess that is really about your your ability to kind of shift to retailers and retailers receptivity. Thanks.

A: Chris, I would just throw out that it is no joke that the direction that I am leading is going to be less focused on the quarters and you know, I I I think it is a really know, honestly shitty way to run a businesses. And I I know I think everybody probably say that knows our business and knows just generally, public companies would say, do not let the quarterly results drive you guys and make you nuts. And part of what I am trying to get the operating team is to say, look, let us go for our milestones. Let us let us you know, and so I I think the answer is Mark will will answer it, but I think the answer is yes. It is evolving and back to a more traditional kind of pattern. Than we had. But, you know, you get snow in in the Northeast and, you know, a lot of parking lots in the Northeast are going to be full. It will probably delay deliveries. And I think the the answer is it does not mean anything. You know? And so I I think the answer is yes. You are seeing evolution in that and maybe it is just back to kind of a more traditional Mark and I talked about this yesterday. It is like, what are you seeing on these patterns? You know, because I mean, think markets sort of I think it will get back to kinda fifty fifty And, you know, I said, is that you see that really happening? And he is like, well, kind of. But I think the thing is we are we are looking for the fiscal year and making the sort of milestones that we need to get to to make like, I am going to say, our plan work. And so I think generally, the answer is yes. But what I do not want to do is get all freaked out over the fact that there is just no doubt that you will see deviation a lot of it depending on weather.

Q: Hey. Thank you. Good morning. Sorry. Was messing with the mute button. So if I understand it correctly, if you want to add a billion dollars from 2025 to the business, and you think about where 2026 will land, which will be a good base of branded, I am getting, like, kind of a $6.06 kinda CAGR from 2027 through or 2026 through 2030. Knows my math right? But if am I right range? And that would be kind of an acceleration at least a performance at the high end of what you expect the branded business to do this year. And how reliant is that on M&A? How reliant is some of these initiatives to be successful such as do it for me? And well as the e-commerce initiative.

A: So I I I would look at it this way. First of all, a lot of the initiatives we talk about really will not be accretive 2027 and beyond. So the M&A and some of the the do it for me and pro. What we are leaning into now is the e-commerce And, you know, we saw Mark talked about it in his prepared remarks, but, you know, we we saw, call it, sort of flat to negative 1% growth overall. Most of that was brick and mortar, but we saw double-digit growth. In e-commerce. And from a market share perspective, while we were flat in brick and mortar, we saw almost two points of gain in e-commerce. So Jim said it, know, it is about 5%. And that is really the path we have to to to get to. And I think the sum you know, my operating plan for 2026, as Jim said, is more aggressive. We can talk more when we when we do the investor day, you know, later this year, but definitely have a plan. We are we are willing to talk through with you guys. Andrew, as a follow-up, Mark Scheiwer here. You are right. You are in the ballpark as far as growth rates go. And, you know, on the finance side, as I kinda look at the building block, as as we set up this year for 2026, pricing is a building block Volume growth is a building block. And then innovation or new product listings are a building block. So if I was to break down that, call it five, 6% of incremental sales growth, you know, those three would be big components of that. We are introducing the tuck-in M&A as well. As part of that. So that would be a part of that growth. I think some of the partnerships we are looking at I think it is safe to assume they would add probably a point of sales growth in the future as we as we navigate those partnerships and and really like those, those businesses, in the future. So I those are probably the four biggest biggest blocks every depending on the year. You know, you may see you may see some of them outperform. And then underlying it all, obviously, would be the e-commerce growth. That that you are starting to that you have been seeing the past, call it, six quarters of our financial results. The the second question, I know that getting back to share repurchase this year, you outlined 40 million shares, which would be down 30% from where you are right now. I want to make sure I understand that the commit to that and if that is flexible, like, if you if the right M&A target came, that that would be off the table. And I assume I am not I am not sure how that would be treated, given the trust ownership, but would the trust participate in that? I mean, it would it might hurt the the dynamics here. The trust moved up to, you know, 37%. So how are you thinking about all those things?

Q: Thanks. Hey, guys. Good morning. A couple of questions on the e-commerce business. I think you mentioned it was up nicely double digits this quarter. And I think you said it was 14% of overall POS. How big can that business be? And I guess, maybe more importantly, what is the margin delta between e-commerce and and brick and mortar?

A: Well, look. I think I think the business can be huge. The list that occurred across all of our retailers You know, I I think that is an important point to make. They are really leaning into it. Very little of it comes from direct to consumer. So I think, you know, Joe, a cost I mean, look. The retailers obviously are highly competitive and trying to figure out how to continue to lower their costs. But we see less than five, you know, percentage point delta in some of the margins, and they are getting better, you know, every quarter. So as the the big guys and you know who they are, sort of invest in their infrastructure, we are riding along. And I think, you know, we are we are just seeing explosive growth, and it is it is not in just exclusive e-commerce. It is also in our traditional brick and mortar partners. We we see a lot of opportunity. It it will be a a big percentage of that billion will come from e-commerce, you know, from various retail partners.

Q: Great. Good morning, and thanks for taking my questions. My first one was on supply chain. You have outlined a multifaceted plan here, you know, everything from automation to more capacity and and SKU rationalization. Any way to rank order some of these things as we as we think about kind of the the biggest opportunity for cost savings and and gross margin ahead? That is my first question. Thanks.

A: Thanks, Jonathan. I you know what? Look. I think they are all important I think if you look at the performance we delivered in last year, I think our team is pretty confident they can continue. As you recall, if we over-delivered, I think we ended up a $100 million out of supply chain, including commodities last year. Got $50 million to go in my original challenge. There will probably be another challenge coming. I it it is a little bit of everything everywhere. So remember, the way we approach, for example, efficiency in our plants you know, a lot of these plants are 50 years old, and the equipment is nearly that old. Way Josh sort of manages that is when we have to replace a line, a bagging line, going to be a more modern, obviously, line that has probably at least a 20-30% improvement in throughput. So it is it is really the sum of a lot of small changes some of the bigger areas are automation in our distribution center. I think, you know, you know, we have been on a journey. So we will continue to deliver results there. And then you know, our our tech transformation. I mean, we are in the process of completely reimagining all of our business processes. Part of our ERP migration, but it is more than that. It is including do we reduce the number of touches on any given project, whether it is a finance project or a marketing one. So I I do not know if I can, rank order them for you, but I can say is I have a lot of confidence that these initiatives are going to continue to to help drive the bottom line.

Q: Hi. I just have two. The first, Mark, when you were discussing M&A, you mentioned 1% growth. So is that to say that, that 5% annual growth target includes about 1% annually?

A: That is correct. Yeah. That would be out in the not this year. But it would be focused on 2027 and beyond.

Q: Hi. This is actually Carla Casella from JPMorgan. Just your thoughts in terms of the longer-term capital structure. And你 mentioned your leverage target, but how did you say how you are going to address the 2026 maturity?

A: Sure. Hello, Carla. This is Mark Scheiwer. So the 2026 maturities, we plan to you you saw on our balance sheet, they they moved to current. Our expectation is we would leverage our free cash flow generation that we that we generate over the summer. That is built into our $275 million of free cash flow plan. Along with access to a revolver to to pay those to pay those off. You know, later this summer. You know, as they as they start to come due. So we will do that you know, at in the summertime. And leverage again free cash flow and then access to our revolving revolver.