Scotts Miracle-Gro (SMG) Q3 EPS Up 12%

Core Insights - Scotts Miracle-Gro reported a significant profit beat with non-GAAP diluted EPS of $2.59, exceeding the analyst forecast of $2.26, while GAAP revenue was $1.19 billion, slightly below both the previous year's $1.20 billion and the analyst estimate of $1,226.93 million [1][2][5] - The company experienced a 1% increase in U.S. Consumer revenue, but total revenue slipped 1.2% year over year, indicating progress in cost control and profitability despite softness in top-line growth [1][5] Financial Performance - Non-GAAP diluted EPS reached $2.59, outperforming the analyst estimate by 14.6% [5] - GAAP revenue was $1.19 billion, down 1% from the prior year and missing the analyst forecast [2][5] - Gross margin rate (non-GAAP) improved by 2.9 percentage points to 32.1% due to reduced material and manufacturing costs [2][6] - Adjusted EBITDA (non-GAAP) was $256.1 million, an 8.1% increase from $236.8 million in Q3 2024 [2][6] Business Overview - Scotts Miracle-Gro is a leading manufacturer of consumer lawn and garden products in North America, with core brands including Scotts, Miracle-Gro, Ortho, and Roundup [3] - The company maintains strong partnerships with major retailers and focuses on cost management, expanding gross margin, and increasing consumer engagement through product innovation [4] Segment Performance - The U.S. Consumer segment, which accounts for the majority of results, saw a 1% increase in net sales, with segment profit growing 12% to $235.5 million [5] - The Hawthorne segment, focused on hydroponics, experienced a significant decline in net sales, dropping 54% to $31.2 million in Q3 FY2025, with plans for divestiture [7] - The "Other" segment, including Canada and miscellaneous international business, saw net sales rise 8% and segment profit climb 44% [7] Strategic Initiatives - The company launched new products in FY2025, including organic fertilizers and natural grass seed, capturing demand from new consumers [8] - Promotional efforts led to a 6% growth in U.S. Consumer point-of-sale units, despite discounting affecting average selling prices [8][9] Future Guidance - Management expects U.S. Consumer net sales to grow at a low single-digit rate for FY2025, with a non-GAAP adjusted gross margin around 30% [10] - Adjusted EBITDA is projected to be between $570 and $590 million, with non-GAAP adjusted EPS of at least $3.50 for FY2025 [10] - Free cash flow is anticipated to be about $250 million for FY2025, with leverage ending Q3 FY2025 at 4.15x [10]