The Scotts Miracle-Gro Company (SMG) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance, improved margins, and strategic growth plans, including e-commerce expansion and product innovation. The Q&A section reveals confidence in outperforming guidance, a robust share repurchase plan, and bullish sentiment from retail partners. Despite some vague responses, the overall outlook is positive, supported by reduced leverage and cost-saving initiatives. With a market cap of approximately $3.8 billion, the stock is likely to experience a positive movement of 2% to 8% over the next two weeks.
Key Financial Performance
Total company net sales $354.4 million, reflecting U.S. consumer sales of $328.5 million. Sales were ahead of expectations due to changes in the timing of early season load-in with certain customers.
Gross margin rate 25% (up 90 basis points year-over-year). The improvement was driven by ongoing supply chain cost efficiencies and planned pricing actions.
SG&A expenses $106 million (decreased 7% year-over-year). The decrease was due to equity compensation decreases, partially offset by an increase in media and marketing to support brands.
Non-GAAP adjusted EBITDA $3 million, ahead of expectations due to the timing shift of U.S. consumer sales tied to seasonal load-in activities of retail partners.
Interest expense $27.2 million (down 20% year-over-year). This was due to lower debt balances and interest rates.
Leverage ratio 4.03x net debt to adjusted EBITDA (improved from 4.52x in the first quarter of fiscal '25). This improvement was due to continued deployment of free cash flow to debt reduction and improved EBITDA.
Free cash flow Favorable by $78 million in the quarter due to timing of accruals and focus on working capital management, including supply chain optimization and automation.
Net loss from continuing operations $47.8 million or $0.83 per share (improved from $66.1 million or $1.15 per share in prior year). The improvement was due to better operational performance and cost management.
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Operating Highlights
New granular turf builder lawn food: Emphasizes safety for kids and pets, launching this quarter.
10-minute lawn care program: Updated line of ready-to-spray liquid fertilizers with a new applicator for ease of use.
Miracle-Gro Organics expansion: Ongoing expansion of the successful organic product line.
Ortho indoor light trap and ant-trap products: New products introduced to build on the success of Mosquito Kill & Prevent.
Green Thumb indoor marketing campaign: Launched in Q1 with a new line of indoor gardening products.
E-commerce growth: E-commerce POS dollars for branded products up 12%, units up 17%, representing 14% of overall POS in Q1.
Channel expansion: Testing concept to supply products for small- and medium-sized professional lawn and garden service providers in two markets.
Black Kow partnership: Exclusive national distributor, manufacturer, and marketer of Black Kow products starting fiscal '27.
Murphy's Naturals partnership: Agreement to represent Murphy's Naturals, focusing on natural insect repellents.
Supply chain optimization: Contributed to a 90 basis point improvement in gross margin.
Automation and AI: Investments in automation and AI to enhance operational efficiency.
CapEx increase: Incremental $30 million in CapEx for plant upgrades, automation, and capacity expansion.
Share repurchase program: New $500 million multiyear program starting in late 2026, aiming to reduce share count to 40 million over time.
Hawthorne divestiture: Pending sale to Vireo Growth, classified as a discontinued operation, improving gross margin by 40 basis points.
Long-term growth targets: Plan to achieve $1 billion in top-line sales growth and $1 billion in EBITDA by 2030 through innovation, pricing, volume, and modest M&A.
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Risk or Challenges
Market Conditions: The company faces challenges in achieving its aggressive long-term financial goals, including $1 billion in top-line sales growth and $1 billion in EBITDA by 2030, which require a 5% annual growth rate. This is more ambitious than the low single-digit gains projected for fiscal 2026 and mid-range goals through 2027.
Regulatory Hurdles: The divestiture of the Hawthorne business and its classification as a discontinued operation may involve regulatory and operational complexities, which could impact the company's financials and strategic focus.
Economic Uncertainties: The company’s financial performance is sensitive to economic conditions, as evidenced by its focus on consumer spending patterns and the need to grow household penetration in key categories.
Supply Chain Disruptions: While the company has made progress in supply chain optimization, ongoing reliance on supply chain efficiencies and automation investments could pose risks if disruptions occur.
Strategic Execution Risks: The company’s aggressive share repurchase program, requiring significant free cash flow and leverage management, could be impacted if financial targets are not met. Additionally, the success of new product launches, M&A activities, and channel expansions are critical to achieving long-term goals.
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Guidance & Outlook
Revenue Growth: The company is targeting a 5% annual top-line growth through innovation, pricing, volume, and modest M&A activities, aiming to achieve an incremental $1 billion in top-line sales by 2030.
EBITDA Growth: The company has set a goal of achieving $1 billion in EBITDA by 2030, supported by gross margin improvements and operational efficiencies.
Fiscal 2026 Guidance: The company expects low single-digit U.S. consumer net sales growth, a non-GAAP adjusted gross margin rate of at least 32%, non-GAAP adjusted earnings per share of $4.15 to $4.35, mid-single-digit non-GAAP adjusted EBITDA growth, and free cash flow of $275 million.
Share Repurchase Program: A new multiyear $500 million share repurchase program will begin in late 2026, with a long-term goal of reducing the share count to around 40 million shares.
Capital Expenditures: The company has budgeted $130 million in capital expenditures for fiscal 2026, focusing on plant upgrades, supply chain automation, and technology enhancements.
Market Trends and Consumer Engagement: The company plans to increase household penetration, target emerging demographics like millennials and Gen Z, and expand its product portfolio to include more organic and natural solutions.
E-commerce and Digital Strategy: The company is enhancing its digital platform and e-commerce capabilities, consolidating all brands under a single website, and leveraging AI-driven consumer guidance and educational content.
M&A Strategy: The company is pursuing strategic tuck-in acquisitions that are margin accretive and align with its long-term growth objectives.
Hawthorne Divestiture: The divestiture of the Hawthorne business is expected to close this quarter, with the proceeds strengthening the balance sheet and eliminating cannabis sector volatility from the company's financials.
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Shareholder Return Plan
Healthy Dividend: The company continues to maintain a robust quarterly dividend as part of its shareholder-friendly actions.
New Share Repurchase Program: The Board of Directors approved a new multiyear $500 million share repurchase program, set to begin in late 2026. The goal is to reduce the share count to around 40 million shares over time, with flexibility to adjust based on financial performance and leverage targets.
Long-term Commitment: The share repurchase program is a long-term initiative requiring future Board authorizations and will be funded through free cash flow. The company views its current share price as undervalued, making repurchases a strategic move to enhance shareholder value.
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Key Q&A
Q:What is driving the high degree of confidence in outperforming guidance this year?
A:The confidence is driven by the Hawthorne divestiture providing a 40 basis points benefit on a full-year basis, good performance on interest expense, strong free cash flow management, positive momentum in retailer sales, and bullishness from innovation and branded products.
Q:How has early retailer shipment activity evolved the view on phasing through the year?
A:Management noted that early activity suggests a return to a more traditional sales pattern, with a potential 1% shift in sales from the second half to the first half. However, they emphasized that weather and other factors could cause deviations.
Q:What is the growth outlook for 2026 and beyond, and how reliant is it on M&A and other initiatives?
A:The growth outlook includes a 5-6% CAGR from 2026 to 2030, driven by pricing, volume growth, innovation, and tuck-in M&A. Initiatives like e-commerce and do-it-for-me will contribute significantly, but their impact will be more visible from 2027 onwards.
Q:What is the commitment to the $1 billion share repurchase plan, and how does it interact with M&A?
A:The $1 billion share repurchase is a long-term commitment, with flexibility to pause if a significant M&A opportunity arises. Management emphasized a focus on investing in the business and being cautious with large M&A deals.
Q:How big can the e-commerce business be, and what is the margin difference compared to brick-and-mortar?
A:The e-commerce business has significant growth potential, with double-digit growth and a 2-point market share gain. The margin difference is less than 5 percentage points and improving as retailers invest in infrastructure.
Q:How are retail partners viewing the lawn and garden category this spring?
A:Retail partners are bullish on the category, seeing it as a traffic driver for both in-store and online sales, especially during times of financial pressure on consumers.
Q:What are the biggest opportunities for cost savings and gross margin improvement?
A:Opportunities include automation in plants and distribution centers, tech transformation, fixed cost leverage, and innovation in products. Management is confident in achieving these savings.
Q:What is being done to increase Pro penetration at retail partners?
A:Efforts include product development with larger sizes and more value for Pro customers, collaboration with retail partners, and direct engagement with small and medium-sized businesses.
Q:What is the plan for addressing the 2026 debt maturity?
A:The plan is to use free cash flow generated over the summer and access to the revolver to pay off the 2026 maturities.
Q:What is the adjusted EBITDA excluding Hawthorne?
A:The adjusted EBITDA for fiscal 2025 excluding Hawthorne is expected to be approximately $570 million.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific impact of weather on sales patterns and provided vague responses about the exact contributions of certain initiatives like do-it-for-me and e-commerce to long-term growth.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Committee
Gro
Hawthorne sale
Investor
Nate plan
RD
Repurchases
Soccer
agreement
approach
area
brand
category
channel consumer
commerce
concept
consumer experience
count share
fertilizer
future
gardening
goal
improvement
lawn garden
margin product
marketing
path
priority
repurchase
retailer
review
share count
share price
shareholder
soil
space
target
track
tuck
webcast
SMG Transcript
The Scotts Miracle-Gro Company (SMG) Q1 2026 Earnings Call Transcript
Positive1-28
The earnings call highlights strong financial performance, improved margins, and strategic growth plans, including e-commerce expansion and product innovation. The Q&A section reveals confidence in outperforming guidance, a robust share repurchase plan, and bullish sentiment from retail partners. Despite some vague responses, the overall outlook is positive, supported by reduced leverage and cost-saving initiatives. With a market cap of approximately $3.8 billion, the stock is likely to experience a positive movement of 2% to 8% over the next two weeks.
The Scotts Miracle-Gro Company (SMG) Presents at Raymond James TMT & Consumer Conference Transcript
Neutral12-9
Dream Industrial Real Estate Investment Trust (DIR.UN:CA) Q3 2025 Earnings Call Transcript
Positive11-5
The earnings call summary indicates positive developments, such as reaffirmed EBITDA guidance, U.S. sales growth, and e-commerce expansion. The Q&A section shows management addressing concerns, noting improvements in leasing and demand, particularly in the U.S. and defense sectors. While some uncertainties exist, the overall sentiment is optimistic, supported by strategic initiatives and market opportunities. The market cap suggests a moderate reaction, leading to a positive stock price movement prediction.
Minto Apartment Real Estate Investment Trust (MI.UN:CA) Q3 2025 Earnings Call Transcript
Unknown11-5
The earnings call summary presents a mixed sentiment. The financial performance and market strategy seem stable, with reaffirmed guidance and growth plans. However, the Q&A reveals concerns about leasing spreads, incentives, and market challenges in Toronto and Vancouver. Management's evasive responses to certain questions further contribute to uncertainty. The company's market cap suggests moderate volatility. Overall, the sentiment is neutral, as positive guidance and strategic plans are balanced by market challenges and management's unclear communication.
SMG Slides
SMG Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
