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SM

SCOTTS MIRACLE-GRO CO (SMG)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered margin-led earnings growth despite modest revenue decline: revenue $1.19B (-1% YoY), U.S. Consumer sales $1.03B (+1% YoY), GAAP EPS $2.54, adjusted EPS $2.59, adjusted EBITDA $256.1M, GAAP gross margin 31.8% and adjusted gross margin 32.1% .
  • Against Street estimates, SMG posted an EPS beat (actual $2.59 vs $2.26*) and an EBITDA beat ($256.1M vs $251.1M*), while revenue missed ($1.19B vs $1.23B*) as Hawthorne’s decline offset U.S. Consumer strength; guidance reaffirmed across EBITDA ($570–$590M), adjusted GM (30%), adjusted EPS (≥$3.50), and FCF ($250M) . Values with asterisks retrieved from S&P Global.
  • Operating momentum remains anchored by gross margin recovery (approx. +290 bps adjusted YoY), supply-chain cost saves, and healthy POS (Q3 units +6%; YTD +8%); leverage improved to 4.15x from 5.46x last year .
  • Near-term stock catalysts: confirmation of FY26 pricing actions, continued POS/e-commerce momentum (online POS units +54% YTD; TikTok launch sold out), and potential Hawthorne divestiture progress by Q4 close .

What Went Well and What Went Wrong

What Went Well

  • Gross margin expansion drove EPS/EBITDA growth: GAAP gross margin 31.8% (+230 bps YoY), adjusted gross margin 32.1% (+290 bps YoY), adjusted EPS $2.59 and adjusted EBITDA $256.1M, all up vs prior year; mix and lower material/manufacturing/distribution costs were key levers .
  • POS and category engagement strong: Q3 POS units +6%; YTD +8% (ex-mulch: Q3 +10%, YTD +8%); soils +12%, mulch +8%, grass seed +16% YTD; e-commerce POS +24% YTD and ~10% of POS dollars .
  • Lawns transformation gaining traction; Midwest POS units +16%, lawn fertilizer +9%, seed +23%; management: “We’re remaking the entire portfolio… lower retail price points… new media strategy pulsing year-round” .

What Went Wrong

  • Total company sales -1% YoY to $1.19B as Hawthorne revenue fell 54% YoY in Q3 (to $31.2M), offsetting U.S. Consumer (+1%) .
  • Controls category faced early-season weather/competitive pressure (selective and non-selective weed control down), although trends reversed with heat by late June/July .
  • Retail replenishment shifted closer to POS curve, contributing to sales phasing; inventories at retail down ~4% ex-mulch and mix shifting more to Q3 from Q2 .

Financial Results

Quarterly P&L Summary

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$0.417 $1.421 $1.188
GAAP Diluted EPS ($)-$1.21 $3.72 $2.54
Adjusted Diluted EPS ($)-$0.89 $3.98 $2.59
GAAP Gross Margin %22.7% 38.6% 31.8%
Adjusted Gross Margin %24.0% 39.1% 32.1%
Adjusted EBITDA ($USD Millions)$3.8 $402.8 $256.1

Q3 2025 vs Street (Consensus)

MetricActualConsensusDelta
Adjusted EPS ($)$2.59 $2.26*+$0.33
Revenue ($USD Billions)$1.188 $1.227*-$0.039
Adjusted EBITDA ($USD Millions)$256.1 $251.1*+$5.0

Values with asterisks retrieved from S&P Global.

Segment Breakdown – Q3 2025

SegmentNet Sales ($USD Millions)YoY %Segment Profit ($USD Millions)
U.S. Consumer$1,030.2 +1% $235.5
Hawthorne$31.2 -54% $0.0
Other (Canada)$126.6 +8% $16.8
Total$1,188.0 -1% $252.3

KPIs and Operating Metrics

KPIQ3 2025YTD FY25
POS Units YoY+6% +8%
POS ex-mulch Units YoY+10% +8%
E-commerce POS YoY+24% +24%
E-commerce Share of POS Dollars~10% ~10%
Leverage (Net Debt/Adj EBITDA)4.15x 4.15x
Interest Expense ($MM)$31.8 $102.0 (first nine months)
Non-GAAP Adjusted Tax Rate29% (Q3) 27.4% (YTD)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
U.S. Consumer net sales growth (ex non-repeat sales)FY 2025Low single-digit Low single-digit Maintained
Adjusted Gross Margin %FY 2025~30% ~30% Maintained
Adjusted EBITDA ($USD Millions)FY 2025$570–$590 $570–$590 Maintained
Adjusted EPS ($)FY 2025≥$3.50 ≥$3.50 Maintained
Free Cash Flow ($USD Millions)FY 2025~$250 ~$250 Maintained
Interest Expense vs Prior YearFY 2025~$30M lower YoY (updated from $15–$20M) Trends favorable; lower vs prior year (not re-stated numerically in 7/30) Maintained qualitative
Diluted Share CountFY 2025+~1M vs prior (updated from +~2M) Not updated in 7/30 releaseNo update
Tax Rate (non-GAAP)FY 2025—27%–29% New explicit range

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
AI/technology initiativesNot highlighted in Q1/Q2 8-KsMarketing content using AI; in-store AI bot for sales; consumer-facing chat agent on brand sites Emerging/expanding
Supply chain & cost savingsQ1: lower material/distribution costs improved margin ; Q2: margin recovery; leverage down ~$75M FY25 U.S. Consumer supply-chain savings; plan additional ~$75M over FY26–FY27 Consistent execution with runway
Tariffs/macro—Minimal tariff impact (90% COGS domestic; >95% locked) Favorable backdrop
Product performanceQ1: U.S. Consumer +11% revenue; strong fall load-in ; Q2: Double-digit POS through first half YTD: soils +12%, mulch +8%, seed +16%; controls rebounded late; organics now ~1/5 of soil sales Broad-based POS strength
Regional trends—Midwest POS units +16%; Texas/Northeast weather lagging Mixed, weather-driven
Regulatory/legal—“One Big Beautiful Bill” restoring TCJA provisions, cash tax benefits highlighted Potential cash tax tailwind
E-commerce/digital—Online POS units +54%; TikTok launch sold out in 1 day Accelerating
HawthorneQ1: strategic exit from third-party distribution; positive adj EBITDA ; Q2: continued softness Three straight quarters of profitability; CEO expects divestiture progress by Q4 close Improving/portfolio simplification
R&D/innovation—Pipeline focused on natural/biological solutions; full lawns relaunch targeted for FY27 Building pipeline

Management Commentary

  • “We’re delivering on all our key financial metrics… POS units across our categories are up 8% on the year” — Jim Hagedorn, CEO .
  • “Our supply chain team has more than delivered… we planned $75 million of savings this year and are working on an additional $75 million over 2026–2027” — Mark Scheiwer, CFO .
  • “We’re remaking the entire [lawns] portfolio… enhanced formulas, standardized sizes, fresh packaging and lower retail price points” — John Sass, SVP Lawns .
  • “Divesting Hawthorne… expect to make progress by the close of Q4” — Jim Hagedorn, CEO .
  • “It is our intent to take pricing next year [FY26]… giving us more resources to invest in innovation and activation” — Jim Hagedorn, CEO .

Q&A Highlights

  • Pricing and mix: FY25 net pricing just under ~1.5%; FY26 pricing planned; majority reinvested into retail activation to drive POS .
  • Category growth/share: Lawn & Garden up ~5% YTD (dollars) with SMG gaining ~200 bps share; management disputes private-label share erosion narrative .
  • Gross margin “walk” to mid-30s: ~100 bps per year from supply-chain savings plus ~100 bps from net pricing; incremental mix/innovation tailwind over multi-year horizon .
  • Replenishment/inventory: Retailers shifting buys toward POS curve (back to ~50/50 first-half/second-half); inventories healthy, down ~4% ex-mulch .
  • Digital/e-commerce acceleration: online POS units up 54% YTD; new product launches via digital channels (e.g., TikTok) to reduce weather seasonality .

Estimates Context

  • Q3 2025 consensus vs actual: Adjusted EPS $2.26* vs actual $2.59 (beat); Revenue $1.227B* vs actual $1.188B (miss); EBITDA $251.1M* vs actual $256.1M (beat) .
  • Forward quarters (indicative):
    • Q4 2025 EPS -$1.97*; revenue $396.8M*; EBITDA -$84.7M* (actuals subsequently: EPS -$1.96, revenue $387.4M, EBITDA -$114.6M in S&P dataset)
    • Q1 2026 EPS -$0.98*; revenue $353.3M*; EBITDA -$11.9M*
    • Q2 2026 EPS $4.00*; revenue $1.430B*; EBITDA $403.6M*
    • Target price consensus: $73.14*
      Values with asterisks retrieved from S&P Global.

Key Takeaways for Investors

  • Margin recovery is the core earnings driver (Q3 adjusted GM 32.1%, +290 bps YoY) with a clear path to mid-30s via annual cost outs and net pricing; expect sustained EPS leverage even on flattish top line .
  • Consumer engagement is robust; POS momentum and digital shift (online POS +24% YTD; ~10% POS dollars online) support durability into the fall season and beyond .
  • Lawns transformation and organics leadership should enhance mix and competitive positioning; Midwest results demonstrate execution despite regional weather variability .
  • Portfolio simplification via Hawthorne divestiture could reduce volatility and improve valuation; management expects progress by Q4 close .
  • Reaffirmed FY25 guidance (EBITDA $570–$590M; EPS ≥$3.50; FCF ~$250M) anchors downside protection; leverage is improving (4.15x, down >1.25 turns YoY) .
  • Near-term trading setup: EPS/EBITDA beats vs consensus, visibility on FY26 pricing, and continued POS strength are positive; watch revenue phasing (replenishment timing) and Hawthorne trajectory .
  • Risks: unfavorable weather, competitive dynamics in controls, and hydroponics softness; however, tariff exposure minimal given domestic sourcing .

Appendix: Dividend Action

  • Board approved a cash dividend of $0.66 per share payable Sept 5, 2025 to holders of record Aug 22, 2025 .

Appendix: Detailed Q3 2025 Financials (from 8-K)

  • Net sales $1,188.0M (-1% YoY); GAAP net income $149.1M; diluted GAAP EPS $2.54; adjusted net income $151.5M; adjusted EPS $2.59; adjusted EBITDA $256.1M .
  • Balance sheet: total assets $3,090.6M; long-term debt $2,136.2M; total liabilities $3,261.5M; equity (deficit) $(170.9)M .

All non-asterisked data cited from company filings/earnings materials as indicated. Values marked with asterisks retrieved from S&P Global.