Scotts Miracle-Gro (NYSE:SMG) used its fiscal first-quarter 2026 earnings call to emphasize a longer-term value creation plan centered on accelerating growth, improving margins, reducing leverage, and returning more capital to shareholders. Chairman and CEO Jim Hagedorn said management has established new financial priorities through 2030, including an internal challenge to add $1 billion of top-line sales and reach $1 billion of total EBITDA around 2030.
Long-term targets and a larger capital return plan
Hagedorn said Scotts is investing “approaching $1 billion annually” across innovation, advertising and digital marketing, and supply chain automation and technology, while working with retail partners to push consumer activation behind higher-margin branded products rather than lower-margin commodities.
Management reiterated its leverage goals, with Hagedorn describing a 3.0x to 3.5x leverage ratio as the company’s “sweet spot,” supported by free cash flow generation. Repurchases are expected to start after leverage falls comfortably below four times, with CFO Mark Scheiwer described as the “gatekeeper” who will modulate buybacks to stay within leverage targets.
Hawthorne classified as discontinued operations ahead of pending sale
A key strategic theme was simplifying the business around lawn and garden through the planned divestiture of Hawthorne. Hagedorn said the pending sale of Hawthorne to Vireo Growth should remove cannabis-sector volatility from Scotts’ shares and allow both businesses to focus on their respective core strategies.
Scheiwer said beginning in the first fiscal quarter, Hawthorne is being classified as a discontinued operation, removed from ongoing operations and reported as a single line item: “Loss from Discontinued Operations Net of Tax.” Prior-period first-quarter results were updated, and the company plans to recast quarterly results for fiscal 2024 and 2025 within the next few weeks to reflect this presentation.
As part of the classification, Scotts recorded a pre-tax asset impairment charge of $105 million within discontinued operations, representing the excess of Hawthorne’s carrying value over its estimated selling price. Scheiwer added that Vireo will acquire Hawthorne in exchange for equity, which Scotts will report as a minority investment going forward. Hagedorn also said Scotts will enter customer agreements to continue providing manufacturing, R&D, transitional, and other services, and that Chief of Staff Chris Hagedorn will join Vireo’s board.
Execution priorities: innovation, e-commerce, branded mix, and pricing
President and COO Nate Baxter framed execution as a “three-stage approach”: delivering fiscal 2026 guidance, achieving midterm priorities through fiscal 2027, and building the longer-term plan to reach the $1 billion sales and $1 billion EBITDA targets. He said the company is on track for both 2026 guidance and midterm priorities, while the broader long-term plan will be detailed at an Investor Day planned for the summer.
Baxter outlined a growth “algorithm” focused on:
- Incremental listings and new product introductions
- E-commerce gains across the retailer base
- Growth in higher-margin branded products
- Pricing
He said Scotts sees an opportunity to grow household penetration, noting that in some major categories it is “as low as 10%,” while consumer demographics are shifting from baby boomers and Gen X toward millennials and Gen Z. Baxter said the company plans to expand its portfolio toward more organic, natural, and biological solutions, broaden channels, and adapt marketing to emerging consumers.
On innovation, Baxter cited several launches and initiatives, including a new granular Turf Builder lawn food emphasizing safety for kids and pets launching during the quarter; the “Ten Minute Lawn Care” updated ready-to-spray liquid fertilizer line with a new applicator; expansion of Miracle-Gro Organics; and new Ortho indoor insect and ant trap products building on last summer’s Mosquito Kill and Prevent launch.
He also highlighted efforts to increase frequency of use through education on multiple feedings for lawns and gardens, and a push to make indoor gardening more year-round, supported by a “Green Thumb” indoor marketing campaign launched in Q1 alongside new indoor products.
Partnerships and M&A approach: “tuck-ins” and distribution agreements
Baxter said the company is initially focusing on licensing or distribution agreements to test partnerships and product strategies, and that any tuck-in M&A will be margin accretive and have “no negative impact on leverage.” He cited two agreements:
- Beginning in fiscal 2027, Scotts will be the exclusive national distributor, manufacturer, and marketer of Black Kow products, including Black Kow manure and organic soils, which management said will augment Miracle-Gro’s organic line and appeal to gardeners who curate their own soils.
- Scotts entered an agreement to become the primary representative for Murphy’s Naturals, which management said will provide access to a team focused on innovation in natural insect repellents and help enhance Scotts’ naturals and organic offerings.
In the Q&A, Scheiwer said the longer-term growth framework contemplates about one percentage point of sales growth from M&A beginning in fiscal 2027 and beyond.
Q1 financial results: sales timing benefits, margin expansion, and lower leverage
Scotts reported total company net sales (excluding Hawthorne) of $354.4 million. U.S. consumer sales were $328.5 million, which Scheiwer said were ahead of expectations due to timing shifts in early-season load-in with certain customers. He emphasized the first quarter typically represents about 10% of full-year sales and largely reflects retailer load-in ahead of the spring and summer season. Retailer shipments in January “picked up at a record pace,” making it “one of the highest January shipment months ever,” he said.
The company also updated how it reports U.S. consumer point-of-sale (POS) activity. Instead of POS for its three largest customers, Scotts will now report branded-product POS across 15 large customers, including e-commerce, while excluding mulch, private label, and other commodity items. Under the new approach, fiscal 2025 POS dollars were up 2%, compared with a 1% increase in U.S. consumer sales. First-quarter fiscal 2026 POS was down 1% in both dollars and units versus the prior-year quarter, which Scheiwer said was a tough comparison against one of the strongest first quarters on record, alongside prior-year weather-driven pull-forward effects.
POS highlights included:
- Indoor gardening POS up 7.7% in dollars and 9% in units
- Roundup POS up 24% in dollars and 27% in units
- E-commerce branded POS up 12% in dollars and 17% in units; e-commerce represented 14% of overall Q1 POS, up 150 basis points year over year
Gross margin improved, with GAAP gross margin at 25%, up 90 basis points year over year. Adjusted gross margin was 25.4% versus 24.5% a year ago, driven by supply chain cost efficiencies and planned pricing actions. SG&A declined 7% to $106 million, reflecting lower equity compensation costs partially offset by increased media and marketing spend.
Adjusted EBITDA was $3 million, ahead of expectations due to the same load-in timing benefits. Interest expense fell 20% year over year to $27.2 million, and leverage improved to 4.03x net debt to adjusted EBITDA from 4.52x a year earlier. Scheiwer said free cash flow was favorable by $78 million in the quarter due to accrual timing and continued working capital management.
For earnings, Scotts reported a GAAP net loss from continuing operations of $47.8 million, or $0.83 per share, compared with a $66.1 million loss, or $1.15 per share, in the prior-year quarter. The adjusted loss was $44.6 million, or $0.77 per share, compared with an adjusted loss of $50.2 million, or $0.88 per share, a year earlier.
Management reiterated fiscal 2026 guidance, including low single-digit U.S. consumer net sales growth, adjusted gross margin of at least 32%, adjusted EPS from continuing operations of $4.15 to $4.35, mid-single-digit adjusted EBITDA growth, and free cash flow of $275 million, which is expected to reduce leverage into the high threes.
About Scotts Miracle-Gro (NYSE:SMG)
Scotts Miracle-Gro Company is a leading developer, manufacturer and distributor of consumer lawn and garden products. The firm serves both retail and professional customers through an array of branded offerings that include lawn fertilizers, grass seed, pest and disease control solutions, plant foods and specialty products for indoor and outdoor gardening. Its portfolio spans well-known names such as Scotts®, Miracle-Gro®, Ortho® and various hydroponic and specialty garden brands.
Headquartered in Marysville, Ohio, the company traces its roots to O.M.
