Scotts Miracle-Grow Earnings Beat and Hawthorne Strategy Update

The TDR Three Key Takeaways regarding Scotts Miracle-Gro and Hawthorne Q2 Financial Results

1. Scotts Miracle-Gro beats EPS expectations by $0.27, achieving $3.69.
2. Hawthorne’s partnership with BFG Supply revamps market strategy.
3. Company targets $575 million in adjusted EBITDA for fiscal 2024.

The Scotts Miracle-Gro Company (NYSE:SMG) reported its second quarter financial results, revealing a Non-GAAP EPS of $3.69, surpassing expectations by $0.27. The company also announced a revenue of $1.53 billion, meeting expectations with a $40 million surplus. This performance marks a stable year-over-year revenue flow.

Scotts Miracle-Gro achieved significant milestones in the first half of 2024, positioning itself to meet its full-year financial targets. In the U.S. Consumer segment, second quarter net sales reached $1.38 billion, matching a previous record. The company saw improvements in GAAP gross margin to 30.4% and adjusted non-GAAP gross margin to 35.3%, indicating enhancements of 350 and 60 basis points, respectively. Notably, the company maintained a strong free cash flow, resulting in a net leverage ratio of 6.95x, which is comfortably below the covenant limit.

Sales in the cannabis-focused Hawthorne segment fell 28 percent to $66.4 million this quarter, down from $92.7 million in the same period last year. This decline is mainly due to the company’s strategic decision to concentrate on its proprietary Signature brands and stop distributing third-party brands. Additionally, the overall indoor and hydroponic industry faced ongoing challenges. During this quarter, Hawthorne also initiated a strategic partnership with BFG Supply aimed at modifying its market approach to focus more on its higher-margin Signature portfolio and to completely withdraw from distributing third-party brands.

Jim Hagedorn, chairman, CEO and president of Scotts Miracle-Gro, expressed satisfaction with the company’s performance, noting its efficient operations and strengthened financial position, which allows for a focus on growth.

Cost management initiatives contributed to a 4% reduction in selling, general, and administrative expenses (SG&A) to $178.7 million. The company’s strategic efforts also led to a significant decrease in interest expenses by 9%, reflecting efficient use of its accounts receivable facility.

During the quarter, the company reported pre-tax restructuring charges of $77.0 million, primarily due to changes in the Hawthorne segment’s supply chain network. Scotts Miracle-Gro’s GAAP net income stood at $157.5 million, with non-GAAP adjusted net income closely following at $211.9 million.

For the first half of fiscal 2024, the company’s total sales decreased by 6% to $1.94 billion, with the U.S. Consumer segment sales down by 2%. Despite these challenges, the company anticipates realizing significant savings from its Project Springboard initiative by the end of the fiscal year.

Scotts Miracle-Gro continues to focus on strengthening its balance sheet and improving financial metrics, aiming for $575 million in adjusted EBITDA and $560 million in free cash flow for fiscal 2024. The company remains committed to achieving its fiscal guidance and will provide further updates in early June. Want to keep up to date with all of TDR’s research and news, subscribe to our daily Baked In newsletter.