Executive Summary

Q2 2025 showed strong profitability despite weather-delayed sell-in: Net sales declined 7% to $1.42B, but GAAP gross margin expanded 820 bps to 38.6% and adjusted gross margin rose 380 bps to 39.1%; adjusted EPS was $3.98 and adjusted EBITDA increased to $402.8M .
U.S. Consumer sales fell 5% to $1.31B due to a colder start and non-repeat FY24 items, while Consumer POS units rose 12.1% YTD, supporting the thesis that demand is healthy and shipments will catch up in Q3 (peak season ~60% of full-year POS) .
Guidance maintained: FY25 U.S. Consumer growth (ex non-repeat), ~30% adjusted gross margin, adjusted EBITDA $570–$590M; Hawthorne revenue guidance withdrawn; interest expense reduction increased to ~$30M vs prior $15–$20M; diluted share count increase cut to ~1M (from 2M); at least $3.50 non-GAAP adjusted EPS for FY25 .
Estimate context: Q2 2025 results vs S&P Global consensus showed a small EPS beat ($3.98 vs $3.93*) and revenue/EBITDA misses ($1.42B vs $1.50B*; $402.8M vs $413.7M*), reflecting mix and promotions; margins recovered faster than expected, offsetting volume softness . Values retrieved from S&P Global.
Catalysts: Reinforced margin recovery trajectory, lower interest expense outlook, strong POS momentum, dividend continuity ($0.66/share), and potential Hawthorne separation to unlock margin and reduce cannabis adjacency risk .

What Went Well and What Went Wrong

What Went Well

Gross margin recovery was substantial (GAAP 38.6%, +820 bps; adjusted 39.1%, +380 bps) driven by lower materials, manufacturing/distribution costs and mix; adjusted EBITDA rose to $402.8M .
POS momentum: Consumer takeaway rose 12.1% units through Q2; April trends consistent; management expects strong replenishment in Q3 (c. 60% FY POS) .
Leverage improved to 4.41x net debt/adjusted EBITDA (below 5.25x covenant), with interest expense trending lower and debt down ~$270M YoY through H1 .
Quote: “We are reaffirming our full year guidance of $570 million to $590 million of EBITDA…we’re largely unaffected by tariffs in fiscal ’25” — Jim Hagedorn (CEO) .

What Went Wrong

Revenue declined 7% to $1.42B; U.S. Consumer -5% and Hawthorne -51% YoY, impacted by weather shifting sell-in and non-repeat FY24 items (AeroGarden, bulk raw materials) and Hawthorne’s exit from third-party distribution .
EBITDA vs consensus: adjusted EBITDA $402.8M vs $413.7M*; revenue $1.42B vs $1.50B*, reflecting heavier early-season promotions and mix headwinds; EPS beat was modest . Values retrieved from S&P Global.
Hawthorne revenue visibility remains challenged; company withdrew full-year Hawthorne revenue guidance due to cannabis industry uncertainty, although Hawthorne delivered positive EBITDA YTD ~$4M .

Financial Results

Consolidated Results vs Prior Quarters

Metric	Q4 2024 (oldest)	Q1 2025	Q2 2025 (newest)
Net Sales ($USD Millions)	$414.7	$416.8	$1,421.0
GAAP Gross Margin %	-7.1%	22.7%	38.6%
Adjusted Gross Margin %	-3.1%	24.0%	39.1%
GAAP Diluted EPS ($)	-$4.29	-$1.21	$3.72
Adjusted Diluted EPS ($)	-$2.31	-$0.89	$3.98
Adjusted EBITDA ($USD Millions)	-$97.2	$3.8	$402.8

Q2 2025 vs Prior Year and vs Estimates

Metric	Q2 2024	Q2 2025 Actual	Consensus Estimate (Q2 2025)
Net Sales ($USD Millions)	$1,525.4	$1,421.0	$1,496.1*
GAAP Gross Margin %	30.4%	38.6%	N/A
Adjusted Gross Margin %	35.3%	39.1%	N/A
Adjusted Diluted EPS ($)	$3.69	$3.98	$3.93*
Adjusted EBITDA ($USD Millions)	$396.3	$402.8	$413.7*

Values retrieved from S&P Global for consensus columns.

Segment Performance (Q2 2025)

Segment	Net Sales ($USD Millions)	YoY %	Segment Profit (Loss) ($USD Millions)	YoY %
U.S. Consumer	$1,311.5	-5%	$392.5	+2%
Hawthorne	$32.7	-51%	-$0.9	+74%
Other (Canada)	$76.8	-3%	$9.0	+41%
Consolidated	$1,421.0	-7%	Total Segment Profit $400.6	+3%

KPIs (Q2 2025)

KPI	Value
Consumer POS units YTD	+12.1%
Consumer POS dollars YTD	+1.5%
Net leverage (Net Debt / Adj EBITDA)	4.41x
GAAP Gross Margin Rate	38.6%
Adjusted Gross Margin Rate	39.1%
Adjusted EBITDA	$402.8M

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
U.S. Consumer net sales (ex non-repeat)	FY 2025	Low single-digit growth	Reaffirmed	Maintained
Hawthorne net sales	FY 2025	Mid-single digit decrease	No longer providing revenue guidance	Withdrawn
Adjusted Gross Margin	FY 2025	~30%	Reaffirmed	Maintained
Adjusted EBITDA	FY 2025	$570–$590M	Reaffirmed	Maintained
Interest Expense vs prior year	FY 2025	-$15M to -$20M	~-$30M	Raised (more reduction)
Diluted share count increase	FY 2025	~+2M (prior estimate)	~+1M	Lowered
Non-GAAP Adjusted EPS	FY 2025	Not provided	At least $3.50	Introduced
Dividend	Q2 2025	—	$0.66 per share (payable Jun 6, 2025)	Announced

Earnings Call Themes & Trends

Topic	Q4 2024 (previous)	Q1 2025 (previous)	Q2 2025 (current)	Trend
Margin recovery & supply chain savings	Outlined multi-year $150M supply chain savings; ~340 bps FY24 adjusted GM improvement; aiming ~30% FY25	+750–1,030 bps GM improvement in Q1; $75M FY25 supply chain savings, ~60% locked commodities	Tracking to ~30% FY25 GM; ~2/3 of $75M realized H1; >80% commodities locked	Improving
Promotions & pricing	Retailers leaning into promotions; limited pricing; mix and cost-outs to drive margins	Elevated promo spend integrated with brand support; list price taken but reinvested into promotions	Heavy promotions explain POS units > dollars; narrowing gap vs private label at promo periods	High promotions continue
Tariffs/Macro	Consumer caution; pricing sensitivity; cautious on broad macro	Focus on affordability; multi-bag lawn strategy, fall campaigns	“Largely unaffected by tariffs in fiscal ’25”	Less tariff impact FY25
Hawthorne strategy	Restructured; positive EBITDA late FY24; cannabis volatility	Target ~$20M FY25 EBITDA; evaluating strategic alternatives	Withdrawn revenue guidance; pursuing separation to a dedicated cannabis company by FY-end	Separation focus
E-commerce/D2C	Emphasis building	Underpenetrated online; plan to turbocharge retailer.com; refresh brand website with D2C	Online opportunity large (current share low-double digits vs ~40% in DIY brick-and-mortar)	Building
Capital allocation & leverage	Free cash flow >$1B over two years; leverage 4.86x; dividend maintained	Path to low-4s by FY25 YE; share count expected ~59M diluted YE	Leverage 4.41x; target ~3.5x by FY27; potential future buybacks/dividends once leverage target met	Improving

Management Commentary

“We’re reaffirming our full year guidance of $570 million to $590 million of EBITDA…we’re largely unaffected by tariffs in fiscal ’25.” — Jim Hagedorn (CEO) .
“Through the second quarter, POS units exceeded prior year by 12.1%… third quarter represents approximately 60% of the total POS for the year.” — Mark Scheiwer (CFO) .
“Leverage ended the second quarter at 4.41x net debt to adjusted EBITDA… on a path to the low 4s by fiscal year-end.” — Mark Scheiwer (CFO) .
“Our mission… 35% gross margin; and $700 million EBITDA [by fiscal ’27].” — Jim Hagedorn (CEO) .
On Hawthorne separation: “Our next step is to sell Hawthorne Gardening to a dedicated cannabis company by fiscal year-end… exiting Hawthorne Gardening will allow us to accelerate tax benefits of up to $100 million.” — Jim Hagedorn (CEO) .

Q&A Highlights

POS mix and margin: Unit vs dollar POS divergence attributed ~60% to mix (soils, growing media, rodenticide) and ~40% to promotions; management confident in gross margin trajectory to mid-30s via cost-outs and transformation .
Private label dynamics: Promotional plans have narrowed pricing gaps; share-of-shelf (off-shelf) up; management does not see major trade-down to private label .
Lawn strategy: Pivot back to multi-bag feedings with measured price reductions over time to drive volume and margin accretion; innovation in packaging, sizing, actives .
Guidance resilience: Despite withdrawing Hawthorne revenue guidance, total company adjusted EBITDA guidance maintained via gross margin recovery, SG&A flexibility, and transformation savings .
Capital policy: Target leverage 3.0–3.5x longer-term, preference to reduce share count with sustained free cash flow once leverage objectives are met .

Estimates Context

Metric (Q2 2025)	Actual	S&P Global Consensus	Delta
Adjusted Diluted EPS ($)	$3.98	$3.93*	+$0.05 (beat)
Net Sales ($USD Millions)	$1,421.0	$1,496.1*	-$75.1 (miss)
Adjusted EBITDA ($USD Millions)	$402.8	$413.7*	-$10.9 (miss)
Revenue – # of Estimates	—	7*	—
EPS – # of Estimates	—	10*	—

Values retrieved from S&P Global.
Implications: modest EPS beat supported by margin recovery; revenue/EBITDA below consensus due to timing and mix, but strong POS suggests shipment catch-up in Q3. Guidance unchanged reinforces forward trajectory .

Key Takeaways for Investors

Margin recovery is the core driver: GAAP GM 38.6% and adjusted GM 39.1% in Q2 signal execution on cost-outs and mix, supporting FY25 ~30% GM guidance and path to mid-30s by FY27 .
POS strength de-risks H2: +12.1% unit POS through Q2 and consistent April trends, with ~60% POS in Q3, argue for sell-in recovery after weather delays; watch Q3 replenishment pace .
Balance sheet and interest tailwind: Leverage at 4.41x and interest expense outlook improved to ~-$30M vs prior year; debt down ~$270M YoY through H1 .
Hawthorne separation could be a structural catalyst: Potential divestiture by FY-end to a cannabis-focused company, tax benefits up to $100M, and reduced valuation overhang from cannabis adjacency .
Promotional muscle and brand investment sustain share gains: Heavy promotions with retailers and elevated media spend are driving unit volume and share-of-shelf; near-term margin trade-offs are offset by cost savings .
Dividend continuity and capital return path: $0.66 dividend affirmed; management targets leverage ~3.0–3.5x by FY27, enabling future buybacks to reduce share count .
Trading lens: Near-term stock reaction hinges on Q3 replenishment data and confirmation of interest expense reductions; medium-term rerating potential tied to Hawthorne separation progress and credible margin expansion to mid-30s .

SCOTTS MIRACLE-GRO CO (SMG)·Q2 2025 Earnings Summary