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

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited condensed consolidated financial statements for Q3 and nine months ended June 28, 2025, including operations, comprehensive income, cash flows, balance sheets, and detailed notes Condensed Consolidated Statements of Operations Net sales slightly decreased in Q3 2025 and for the nine-month period, while net income increased significantly for both periods Condensed Consolidated Statements of Operations | Financial Metric | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | Nine Months Ended June 28, 2025 | Nine Months Ended June 29, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,188.0 M | $1,202.2 M | $3,025.8 M | $3,138.0 M | | Gross margin | $378.0 M | $354.1 M | $1,020.7 M | $880.0 M | | Income from operations | $215.0 M | $200.1 M | $508.7 M | $424.9 M | | Net income | $149.1 M | $132.1 M | $297.1 M | $209.1 M | | Diluted net income per common share | $2.54 | $2.28 | $5.07 | $3.64 | Condensed Consolidated Statements of Comprehensive Income (Loss) Comprehensive income increased for both the three and nine months ended June 28, 2025, reflecting net income adjusted for other comprehensive items Condensed Consolidated Statements of Comprehensive Income (Loss) | Metric | Three Months Ended June 28, 2025 | Nine Months Ended June 28, 2025 | | :--- | :--- | :--- | | Net income | $149.1 M | $297.1 M | | Total other comprehensive income (loss) | $1.2 M | $(0.2) M | | Comprehensive income | $150.3 M | $296.9 M | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly decreased for the nine months ended June 28, 2025, leading to a net decrease in cash and cash equivalents Condensed Consolidated Statements of Cash Flows | Cash Flow Activity (Nine Months Ended) | June 28, 2025 | June 29, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $197.2 M | $549.0 M | | Net cash used in investing activities | $(60.0) M | $(80.0) M | | Net cash used in financing activities | $(158.2) M | $(221.1) M | | Net increase (decrease) in cash | $(20.5) M | $248.0 M | | Cash and cash equivalents at end of period | $51.1 M | $279.9 M | Condensed Consolidated Balance Sheets As of June 28, 2025, total assets were $3,090.6 million, with a total equity deficit of $170.9 million, reflecting changes in receivables and debt Condensed Consolidated Balance Sheets | Balance Sheet Item | June 28, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Total current assets | $1,283.3 M | $980.4 M | | Total assets | $3,090.6 M | $2,871.9 M | | Total current liabilities | $798.6 M | $750.3 M | | Long-term debt | $2,136.2 M | $2,174.2 M | | Total liabilities | $3,261.5 M | $3,262.5 M | | Total equity (deficit) | $(170.9) M | $(390.6) M | Notes to Condensed Consolidated Financial Statements Detailed notes explain accounting policies, including the consolidation of THC, accounts receivable sales, debt covenant compliance, and segment performance - The company sold its subsidiary The Hawthorne Collective, Inc. ("THC") but determined it is the primary beneficiary of the acquiring entity (BDH), a variable interest entity, and therefore continues to consolidate it[24] - Under its Master Receivables Purchase Agreement, the company sold $1,708.9 million of accounts receivable during the nine months ended June 28, 2025. Net receivables derecognized from the balance sheet were $418.8 million as of that date[27] Debt Covenant Compliance | Debt Covenant | Requirement | Actual as of June 28, 2025 | | :--- | :--- | :--- | | Maximum Leverage Ratio | ≤ 5.00 | 4.15 | | Minimum Fixed Charge Coverage Ratio | ≥ 1.00 | 1.47 | Segment Net Sales (Nine Months Ended June 28, 2025) | Segment | Amount | | :--- | :--- | | U.S. Consumer | $2,682.6 M | | Hawthorne | $115.9 M | | Other | $227.3 M | | Consolidated | $3,025.8 M | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses a 3.6% net sales decrease, primarily from the Hawthorne segment, offset by improved gross margin and strong debt covenant compliance Results of Operations Net sales decreased 3.6% for the nine months ended June 28, 2025, but gross margin rate improved significantly, leading to higher net income Contribution to Change in Net Sales | Contribution to Change in Net Sales | Three Months Ended June 28, 2025 | Nine Months Ended June 28, 2025 | | :--- | :--- | :--- | | Volume and mix | (0.9)% | (2.8)% | | Pricing | (0.2)% | (0.6)% | | Foreign exchange rates | (0.1)% | (0.2)% | | Total Change in net sales | (1.2)% | (3.6)% | Contribution to Change in Gross Margin Rate | Contribution to Change in Gross Margin Rate | Three Months Ended June 28, 2025 | Nine Months Ended June 28, 2025 | | :--- | :--- | :--- | | Volume, mix and other | 2.5% | 2.9% | | Material costs | 0.9% | 1.8% | | Pricing | (0.2)% | (0.5)% | | Impairment, restructuring and other | (0.6)% | 1.6% | | Total Change in gross margin rate | 2.3% | 5.7% | - Interest expense for the nine months ended June 28, 2025, decreased by 18.8% to $102.0 million, driven by lower average borrowings of $341.7 million and a 50 basis point decrease in the weighted average interest rate[132] Segment Results U.S. Consumer sales slightly declined but profit rose, Hawthorne sales sharply decreased but became profitable, and Other segment sales and profit increased Segment Performance | Segment | Net Sales (9M 2025) | % Change YoY | Segment Profit (9M 2025) | Segment Profit (9M 2024) | | :--- | :--- | :--- | :--- | :--- | | U.S. Consumer | $2,682.6 M | (0.8)% | $638.1 M | $580.5 M | | Hawthorne | $115.9 M | (45.9)% | $0.7 M | $(9.2) M | | Other | $227.3 M | 3.4% | $22.7 M | $13.0 M | Liquidity and Capital Resources Operating cash flow decreased significantly, but the company maintained strong compliance with all debt covenants and substantial borrowing availability - Net cash provided by operating activities decreased from $549.0 million to $197.2 million for the nine months ended June 28, 2025, compared to the prior year[147][148] - As of June 28, 2025, the company was in compliance with all debt covenants and expects to remain so. The leverage ratio was 4.15 against a maximum of 5.00, and the fixed charge coverage ratio was 1.47 against a minimum of 1.00[159][160] - The company had $1,166.9 million of borrowing availability under its Sixth A&R Credit Agreement as of June 28, 2025[158] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in the company's quantitative and qualitative market risk disclosures during Q3 fiscal 2025 - There were no material changes to the company's market risk disclosures from the 2024 Annual Report[187] Item 4. Controls and Procedures Disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective as of June 28, 2025[189] - No material changes to the company's internal control over financial reporting occurred during the fiscal quarter[190] PART II. OTHER INFORMATION Item 1. Legal Proceedings No material developments occurred in previously disclosed legal proceedings, and other claims are not expected to have a material adverse effect - There have been no material developments to the pending legal proceedings previously disclosed in the 2024 Annual Report[191] Item 1A. Risk Factors The company's risk factors have not materially changed from those described in its 2024 Annual Report on Form 10-K - The company's risk factors have not materially changed from those described in the 2024 Annual Report[193] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Dividend payments are limited by the credit agreement, and the company has no active share repurchase program, with minor share purchases by a trustee - The company's credit agreement limits regularly scheduled cash dividends to holders of its Common Shares to an aggregate amount not to exceed $225.0 million per fiscal year[198] - The company does not have an active share repurchase program. A total of 4,449 shares were purchased during the quarter by a trustee for an executive retirement plan[199][201] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None[202] Item 5. Other Information No director or officer adopted, modified, or terminated any Rule 10b5-1 trading arrangements during the quarter - No director or officer adopted, modified, or terminated any Rule 10b5-1 trading arrangement during the quarter[204] Item 6. Exhibits This section indexes exhibits filed with Form 10-Q, including officer certifications, subsidiary lists, and XBRL data files - The report includes a list of exhibits filed, such as certifications, lists of subsidiaries, and XBRL data files[205][208]