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SM

SCOTTS MIRACLE-GRO CO (SMG)·Q4 2025 Earnings Summary

Executive Summary

  • Q4 2025 capped a strong FY25: GAAP gross margin rose to 6.1% (from -7.1% YoY) and adjusted gross margin to 7.2% (from -3.1%), driven by non-recurrence of FY24 inventory write-offs, favorable mix, and cost savings . EPS was a seasonal loss of -$2.63 GAAP and -$1.96 adjusted, improving YoY .
  • FY25 delivered above-guidance profitability: adjusted gross margin 31.2% (vs ~30% guided), adjusted EPS $3.74 (vs ≥$3.50 guided), adjusted EBITDA $581.1M (within $570–$590M guided), and free cash flow $273.9M (vs ~$250M guided) .
  • FY26 guidance targets further gains: U.S. Consumer low-single-digit growth, adjusted gross margin ≥32%, adjusted EPS $4.15–$4.35, adjusted EBITDA mid-single-digit growth, FCF $275M, leverage ratio in high-3x .
  • Strategic mix shift toward higher-margin branded products and e-commerce expansion underpins FY26 margin and growth algorithm; management also flagged a potential multiyear share repurchase authorization of $0.5–$1.0B, contingent on leverage <4x and performance visibility .
  • Catalysts: continued gross margin expansion and leverage reduction, branded activation and e-commerce growth, Hawthorne portfolio divestiture progress, and potential buyback authorization .

What Went Well and What Went Wrong

What Went Well

  • Gross margin expansion exceeded plan: FY25 adjusted gross margin reached 31.2% (+490 bps YoY) vs ~30% guidance, aided by supply chain savings, mix, and lower input costs . “We not only delivered on our fiscal ‘25 guidance, but we also outperformed our expectations for gross margin expansion, EPS and free cash flow” — CFO Mark Scheiwer .
  • Branded momentum and e-commerce gains: FY25 POS units +8.5% and dollars +1.4%; e-commerce POS units +51%, dollars +23%, lifting e-commerce to 10% of POS (+170 bps) . CEO: “There is unmatched power in our retailer programs… These activation investments approach $1,000,000,000 annually” .
  • Balance sheet progress: net leverage improved to 4.10x (from 4.86x in FY24) with $273.9M FCF; interest expense declined $30M YoY to $128.8M .

What Went Wrong

  • Q4 revenue and EBITDA missed consensus on seasonality and Hawthorne divestiture impacts: revenue $387.4M vs ~$396.8M consensus; adjusted EBITDA -$81.6M vs ~$-84.7M consensus (better on EBITDA but revenue miss), reflecting non-repeat items and seasonal activation . See Estimates Context table below for detail.*
  • Q4 U.S. Consumer segment profit was a seasonal loss (-$65.5M), and Hawthorne net sales declined -38% YoY as the company exited low-margin activities and sold the Netherlands professional horticulture business .
  • Retailer ordering cadence shift: management expects a 1%–2% sales shift from H1 to H2 in FY26 as retailers order closer to POS curves, likely pressuring Q1 volume and margins given fixed cost structure .

Financial Results

Quarterly P&L and Margins (oldest → newest)

MetricQ2 2025Q3 2025Q4 2025
Revenue ($USD Millions)$1,421.0 $1,188.0 $387.4
GAAP Diluted EPS ($)$3.72 $2.54 -$2.63
Adjusted Diluted EPS ($)$3.98 $2.59 -$1.96
GAAP Gross Margin (%)38.6% 31.8% 6.1%
Adjusted Gross Margin (%)39.1% 32.1% 7.2%
Adjusted EBITDA ($USD Millions)$402.8 $256.1 -$81.6
GAAP Net Income ($USD Millions)$217.5 $149.1 -$151.8

Segment Breakdown – Q4 2025

SegmentNet Sales ($USD Millions)YoY %Segment Profit (Loss) (Non-GAAP) ($USD Millions)
U.S. Consumer$311.2 ~0% (flat) -$65.5
Hawthorne$49.9 -38% $2.0
Other (Canada)$26.3 +7% -$9.8
Consolidated$387.4 -7% —

KPIs and Balance Sheet (FY25 unless noted)

KPI / MetricValue
FY25 POS units / dollars+8.5% units; +1.4% dollars
Q4 POS units / dollars+11% units; +3.6% dollars
E-commerce POS+51% units; +23% dollars; 10% of POS (+170 bps)
FY25 Free Cash Flow$273.9M
Net Leverage (FY25 end)4.10x
Interest Expense (FY25)$128.8M
Cash & Equivalents (FY25 end)$36.6M
Dividend declared$0.66/share payable Dec 5, 2025

Actual vs Wall Street Consensus (S&P Global) – Q4 2025

MetricActualConsensusBeat/Miss
Revenue ($USD Millions)$387.4 $396.8*Miss
Adjusted EPS ($)-$1.96 -$1.97*In line
Adjusted EBITDA ($USD Millions)-$81.6 -$84.7*Beat

Values marked with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
U.S. Consumer Net SalesFY26—Low single-digit growth New
Adjusted Gross Margin (%)FY26—≥32%; CEO “approaching 33%” New
Adjusted EPS ($)FY26—$4.15–$4.35 New
Adjusted EBITDAFY26—Mid single-digit growth New
Free Cash Flow ($)FY26—$275M New
Leverage RatioFY26—High 3x New
Adjusted Gross Margin (%)FY25~30% (reaffirmed Jul 30) Actual 31.2% Beat vs guidance
Adjusted EPS ($)FY25≥$3.50 (reaffirmed Jul 30) Actual $3.74 Beat vs guidance
Adjusted EBITDA ($)FY25$570–$590M (reaffirmed Jul 30) Actual $581.1M Within guidance
Free Cash Flow ($)FY25~$250M (reaffirmed Jul 30) Actual $273.9M Beat vs guidance
DividendQ4 2025—$0.66/share declared Maintained payout

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
Branded mix shift vs commoditiesReaffirmed focus on higher-margin branded fertilizer/soils; non-repeat bulk raw materials/AeroGarden Explicit de-emphasis of mulch; redirect activation to brands; “approach $1B” in activation; retailer alignment Strengthening toward brands; margin accretive
E-commerce accelerationBuilding gains through retailer sites POS units +51%, dollars +23%; e-com now 10% of POS; dedicated team and loyalty/subscription initiatives Rapid growth; structural shift
Supply chain savings & automationTargeted multi-year savings; Q2 gross margin +820 bps GAAP Continued cost savings; robotics/AI roadmap; SKU rationalization supports margins Ongoing margin tailwinds
Tariffs/macro exposureLargely unaffected by tariffs “We are relatively unaffected by tariffs given our domestic sourcing” Neutral macro impact
Product innovation (Lawns, Controls, Organics)Stronger branded fertilizer/soils mix New Turf Builder (4x/year feeding), 10+ new Ortho SKUs; fastest launch ever in Miracle-Gro Organics Pipeline building; category reinvention
Private labelMinimal competitive pressure; share steady “Not under private label pressure”; retailers leaning into brands Favorable branded positioning
Hawthorne strategyNo FY25 revenue guidance; profitability focus Sold Netherlands pro hort business; plan to combine Hawthorne with cannabis entity; preserve ~$100M tax benefit Divestiture progressing
Capital allocationEmphasis on debt reduction and FCF Potential $0.5–$1.0B buyback over multi-year; EPS guidance excludes buyback impact Shareholder-friendly actions contemplated

Management Commentary

  • CEO mission and margin confidence: “We expect to maintain low single digit sales growth for U.S. Consumer and deliver gross margin approaching 33%. Leverage is expected to get safely into the 3s” .
  • Branded activation strategy: “By stepping away from lower priced, low margin commodities and focusing on our higher priced, high margin brands, we intend to drive a significant improvement in the quality of consumer sales” .
  • E-commerce push: “We achieved over a 50% increase in e-commerce POS units... our online share has grown” .
  • Hawthorne trajectory: “Hawthorne Gardening... contributed positive EBITDA for the full year... we sold the international professional horticulture arm... next and final phase is to combine Hawthorne Gardening with a cannabis dedicated entity” .
  • CFO on FY26 guide pillars: “Adjusted gross margin rate of at least 32%... adjusted EPS of $4.15 to $4.35... mid single digit growth in adjusted EBITDA... free cash flow of $275,000,000 and leverage ratio of high 3x” .

Q&A Highlights

  • Lawn strategy synergies: Focus on frequency and multi-bag purchases to reverse decade-long unit declines; new formulations with lower price points to broaden penetration .
  • Private label discussion: Management sees limited pressure and is reallocating activation dollars toward brands, with retailer alignment and improved margins .
  • Advertising intensity and efficiency: FY25 advertising expense ~$152M (+$11M YoY) plus ~$10M incremental at Roundup; long-term target ~8% of revenue with more digital/personalization efficiency .
  • Sales growth algorithm: Innovation, pricing (1–2%), channel expansion (e-comm, Hispanic), and potential tuck-in M&A underpin return to ~3% annual growth by FY27 .
  • AI and digital assets: Digitizing proprietary lawn/garden knowledge, aiming to deploy consumer-facing AI tools by fiscal Q2 and share with retail partners .
  • Cadence guidance: Expect 1%–2% sales shift toward H2 in FY26; Q1 margins may be impacted by lower volume vs fixed cost base; SG&A ratio ~17% maintained with reallocations to advertising .

Estimates Context

  • Q4 2025 vs consensus: Revenue missed; adjusted EPS in line; adjusted EBITDA beat modestly. FY25 overall exceeded profitability guidance, suggesting upward bias to FY26 margin/EPS estimates if execution continues on mix and cost savings . Consensus values from S&P Global.*
  • Prior quarters: Q2 and Q3 actuals exceeded consensus EPS and delivered margin gains, reinforcing the trajectory of gross margin recovery and branded mix .*

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Margin story intact and accelerating: structural mix shift and automation should support ≥32% adjusted gross margin in FY26 with potential upside; watch early-season Q1 cadence .
  • Branded activation and e-commerce are the growth engines: double-digit e-com growth and brand-led activation are expanding share and improving unit economics; monitor retailer program execution .
  • Balance sheet de-risking continues: improving leverage (target high-3x in FY26) and lower interest expense improve FCF durability; supports potential buybacks .
  • Hawthorne exit progressing: further divestiture steps could simplify the story and unlock tax benefits; track timeline and structure of combination with cannabis entity .
  • Near-term trading setup: Q1 FY26 may see volume/margin pressure due to retailer cadence shift; strength should re-accelerate into Q2–Q3; focus on gross margin prints and POS trends .
  • Estimates likely to drift higher on FY26 EPS/margin if execution persists; consensus appears conservative vs internal incentives and management tone .
  • Dividend maintained; potential multi-year buyback authorization could be a material stock support if leverage milestones are met .