Scotts Miracle-Gro(SMG) - 2025 Q3 - Quarterly Results

Third Quarter 2025 Results Overview The company reported its third-quarter fiscal 2025 results, highlighting financial performance, management's strategic commentary, and reaffirmed full-year guidance Q3 2025 Financial Performance Highlights Despite a slight 1% sales decrease to $1.19 billion, ScottsMiracle-Gro significantly improved profitability, driven by substantial gross margin expansion Q3 2025 Financial Performance (in millions, except per share data) | Financial Metric | Q3 2025 | Q3 2024 | Change | | :--- | :--- | :--- | :--- | | Total Company Sales | $1,190.0 | $1,200.0 | -1% | | U.S. Consumer Sales | $1,030.0 | $1,020.0 | +1% | | GAAP Net Income | $149.1 | $132.1 | +12.9% | | GAAP Diluted EPS | $2.54 | $2.28 | +11.4% | | Non-GAAP Adj. Net Income | $151.5 | $133.8 | +13.2% | | Non-GAAP Adj. Diluted EPS | $2.59 | $2.31 | +12.1% | | Non-GAAP Adj. EBITDA | $256.1 | $236.8 | +8.2% | Gross Margin Rate Performance | Gross Margin Rate | Q3 2025 | Q3 2024 | Basis Point Change | | :--- | :--- | :--- | :--- | | GAAP | 31.8% | 29.5% | +230 bps | | Non-GAAP Adjusted | 32.1% | 29.2% | +290 bps | - Gross margin improvement was attributed to a better product mix, including fewer low-margin sales and more high-margin branded products, as well as lower material, manufacturing, and distribution costs[6] - Leverage improved significantly, reaching 4.15x, a reduction of over 1.3x compared to the same period last year[9] Management Commentary Management expressed confidence in achieving full-year fiscal 2025 guidance, citing strong consumer and retail partner engagement, while strategically shifting focus to attracting new and younger consumers for future growth - CEO Jim Hagedorn stated the company delivered significant improvements in key financial metrics, putting it on track to meet full-year guidance[3] - The company is transitioning from internal cost-saving and efficiency initiatives to external efforts aimed at attracting new and younger consumers[4] - CFO Mark Scheiwer noted strong engagement from retailers and consumers is expected to continue, bolstering confidence in fiscal 2025 commitments to improve profitability and strengthen the balance sheet[4] Fiscal 2025 Outlook The company reaffirmed its full-year non-GAAP fiscal 2025 guidance, targeting low single-digit U.S. Consumer net sales growth, approximately 30% adjusted gross margin, adjusted EBITDA between $570 million and $590 million, and at least $3.50 in adjusted EPS Fiscal Year 2025 Guidance (in millions, except per share data) | Metric | FY 2025 Guidance | | :--- | :--- | | U.S. Consumer Net Sales Growth | Low single-digit growth (excl. non-repeat sales) | | Non-GAAP Adjusted Gross Margin | ~30% | | Non-GAAP Adjusted EBITDA | $570 - $590 | | Non-GAAP Adjusted EPS | At least $3.50 | | Free Cash Flow | ~$250 | - The company reaffirmed the full-year non-GAAP fiscal 2025 guidance previously provided in early June[10] Financial Statements This section presents the company's condensed consolidated statements of operations, segment results, and balance sheets for the reported periods Condensed Consolidated Statements of Operations For Q3 2025, net sales decreased 1% to $1.19 billion, while income from operations grew 7% to $215.0 million and net income increased 13% to $149.1 million, reflecting improved profitability for both the quarter and the nine-month period Condensed Consolidated Statements of Operations (Three Months Ended June 28, 2025 and June 29, 2024) (in millions, except per share data) | (In millions, except per share data) | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $1,188.0 | $1,202.2 | (1)% | | Gross margin | $378.0 | $354.1 | 7% | | Income from operations | $215.0 | $200.1 | 7% | | Net income | $149.1 | $132.1 | 13% | | Diluted net income per common share | $2.54 | $2.28 | 11% | Condensed Consolidated Statements of Operations (Nine Months Ended June 28, 2025 and June 29, 2024) (in millions, except per share data) | (In millions, except per share data) | Nine Months Ended June 28, 2025 | Nine Months Ended June 29, 2024 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $3,025.8 | $3,138.0 | (4)% | | Gross margin | $1,020.7 | $880.0 | 16% | | Income from operations | $508.7 | $424.9 | 20% | | Net income | $297.1 | $209.1 | 42% | | Diluted net income per common share | $5.07 | $3.64 | 39% | Segment Results In Q3 2025, U.S. Consumer sales grew 1% to $1.03 billion with a 12% profit increase, while Hawthorne sales sharply declined 54% to $31.2 million with zero profit, and the 'Other' segment saw strong 8% sales growth and 44% profit rise Net Sales by Segment (in millions) | Net Sales (in millions) | Q3 2025 | Q3 2024 | % Change | | :--- | :--- | :--- | :--- | | U.S. Consumer | $1,030.2 | $1,017.5 | 1% | | Hawthorne | $31.2 | $67.7 | (54)% | | Other | $126.6 | $117.0 | 8% | | Consolidated | $1,188.0 | $1,202.2 | (1)% | Segment Profit (Non-GAAP, in millions) | Segment Profit (Non-GAAP, in millions) | Q3 2025 | Q3 2024 | % Change | | :--- | :--- | :--- | :--- | | U.S. Consumer | $235.5 | $210.3 | 12% | | Hawthorne | $— | $3.8 | (100)% | | Other | $16.8 | $11.7 | 44% | | Total Segment Profit | $252.3 | $225.8 | 12% | Condensed Consolidated Balance Sheets As of June 28, 2025, total assets decreased to $3.09 billion from $3.49 billion, total liabilities reduced to $3.26 billion from $3.64 billion, with cash and equivalents decreasing to $51.1 million and long-term debt to $2.14 billion Condensed Consolidated Balance Sheets (in millions) | (In millions) | June 28, 2025 | June 29, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $51.1 | $279.9 | | Inventories | $544.3 | $606.8 | | Total current assets | $1,283.3 | $1,538.4 | | Total assets | $3,090.6 | $3,489.3 | | Liabilities and Equity | | | | Total current liabilities | $798.6 | $854.4 | | Long-term debt | $2,136.2 | $2,436.4 | | Total liabilities | $3,261.5 | $3,635.5 | | Equity (deficit) | $(170.9) | $(146.2) | Non-GAAP Financial Measures This section provides reconciliations of GAAP to non-GAAP financial measures and explains the rationale for their use in performance evaluation and financial planning Reconciliation of Non-GAAP Measures The report details reconciliations of GAAP to non-GAAP financial measures, showing Q3 2025 adjusted net income at $151.5 million and adjusted EBITDA at $256.1 million after specific adjustments Q3 2025 Reconciliation of GAAP to Non-GAAP Measures (in millions, except per share data) | Q3 2025 Reconciliation (In millions) | As Reported (GAAP) | Adjustments | Adjusted (Non-GAAP) | | :--- | :--- | :--- | :--- | | Gross margin | $378.0 | $(3.7) | $381.7 | | Income from operations | $215.0 | $(6.1) | $221.2 | | Net income | $149.1 | $(2.5) | $151.5 | | Diluted EPS | $2.54 | $(0.04) | $2.59 | Adjusted EBITDA Calculation (in millions) | Adjusted EBITDA Calculation (In millions) | Q3 2025 | Q3 2024 | | :--- | :--- | :--- | | Net income (GAAP) | $149.1 | $132.1 | | Plus: Income tax, Interest, D&A, etc. | $107.0 | $86.2 | | Adjusted EBITDA (Non-GAAP) | $256.1 | $236.8 | Explanation of Non-GAAP Measures Management utilizes non-GAAP financial measures, excluding non-ordinary items like impairments and restructuring costs, for performance evaluation, financial planning, and incentive compensation, believing they offer a clearer view of underlying business trends, while forward-looking reconciliation is not provided due to unreasonable efforts - Management uses non-GAAP measures to evaluate performance, for financial and operational planning, and to determine incentive compensation[33] - Non-GAAP measures exclude items such as impairments, restructuring and employee severance costs, and costs related to refinancing to provide a supplemental comparison of operating results[37] - The company does not provide a reconciliation of forward-looking non-GAAP measures to GAAP measures, citing the unreasonable efforts exception under Regulation S-K[45] Other Information This section provides an overview of ScottsMiracle-Gro's business and includes cautionary notes regarding forward-looking statements and associated risk factors About ScottsMiracle-Gro ScottsMiracle-Gro is the world's largest marketer of branded consumer lawn and garden products with approximately $3.6 billion in sales, including key brands like Scotts®, Miracle-Gro®, and Ortho®, and operates in the indoor/hydroponic segment through Hawthorne Gardening Company - The company is the world's largest marketer of branded consumer products for lawn and garden care, with approximately $3.6 billion in sales[11] - Key market-leading brands include Scotts®, Miracle-Gro®, and Ortho®[11] - The Hawthorne Gardening Company subsidiary is a leading provider of materials for the indoor and hydroponic growing segment[11] Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements subject to risks including economic downturns, cybersecurity, competition, weather, supply chain disruptions, and sales concentration, with Hagedorn Partnership, L.P. holding significant influence due to its 23% common share ownership - Identified risks include economic downturns, IT system failures or cyber-attacks, market competition, climate change, and supply chain disruptions[14] - The company's sales are concentrated with a small number of retail customers, posing a risk if a top customer is lost or reduces orders[14] - Hagedorn Partnership, L.P. beneficially owns approximately 23% of the Company's common shares and can significantly influence shareholder decisions[14]