ScottsMiracle-Gro Reports Second Quarter Results; Gross Margin Improvement Drives EBITDA Growth

Core Viewpoint - The Scotts Miracle-Gro Company reported a decline in sales for the second quarter of fiscal 2025, but showed improvements in gross margin and net income, reaffirming its financial guidance for the U.S. Consumer segment while withdrawing revenue guidance for the Hawthorne segment due to uncertainties in the cannabis industry [4][9][10]. Financial Performance - Total sales for the second quarter were $1.42 billion, a 7% decrease from $1.53 billion in the prior year [4]. - U.S. Consumer sales decreased by 5% to $1.31 billion, attributed to a slower start to the lawn and garden season and non-repeating sales from fiscal 2024 [4]. - GAAP net income was $217.5 million, or $3.72 per diluted share, compared to $157.5 million, or $2.74 per diluted share, in the same quarter last year, marking a 38% increase [6][17]. - Non-GAAP adjusted net income for the quarter was $232.2 million, or $3.98 per diluted share, up from $211.9 million, or $3.69 per diluted share, a 10% increase [6][17]. Margin and Cost Management - GAAP gross margin rate improved to 38.6%, up from 30.4% in the prior year, while non-GAAP adjusted gross margin rate was 39.1%, compared to 35.3% [5][10]. - The improvement in gross margin was primarily due to lower material, manufacturing, and distribution costs, as well as an improved product mix [5]. Segment Performance - U.S. Consumer segment net sales for the quarter were $1.31 billion, down 5% year-over-year, while the Hawthorne segment saw a significant decline of 51% to $32.7 million [19]. - The Other segment reported a slight decrease of 3% in net sales to $76.8 million [19]. Outlook and Guidance - The company reaffirmed its guidance for U.S. Consumer segment net sales, adjusted gross margin, adjusted EBITDA, and free cash flow [9][10]. - Due to uncertainties in the cannabis industry, the company is no longer providing full-year revenue guidance for the Hawthorne segment [9]. Cash Flow and Debt Management - The company is focused on driving significant free cash flow and debt paydown while making incremental investments in consumer activation programs [8]. - Net leverage improved to 4.41x, down from 6.95x in the prior year [10]. Consumer Trends - Consumer purchases measured through point-of-sale (POS) data showed double-digit increases in consumer takeaway for the second consecutive quarter, indicating strong consumer health [3]. - The company expects 60% of full-year consumer takeaway to occur in the third quarter [10].