Inve US ▾
SMSMG

Scotts Miracle-Gro (SMG) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q2 FY26)· Materials· Apr 29, 2026

Source: earnings call transcript

Executive summary

Scotts Miracle-Gro Q2 FY26 — Leverage Reduction, Gross Margin Expansion, and Strategic Growth Initiatives

The company reported strong Q2 FY26 results, driven by significant gross margin expansion, robust e-commerce growth, and a reduction in leverage, affirming its full-year guidance. Management is initiating a multi-year share repurchase program and outlining a long-term SMG 2.0 growth strategy focused on channel expansion, innovation, and operational efficiencies. The company is preparing to address potential commodity inflation in FY27 through strategic pricing adjustments.

Highlights

5

  • Leverage reduced to 3.71x debt-to-EBITDA, marking the first time below 4x in 4 years.

  • Gross margin rate improved by 280 basis points (GAAP) and 240 basis points (non-GAAP) in Q2 FY26.

  • Total company net sales increased 5% to $1.46 billion in Q2 FY26.

  • E-commerce POS dollars were up 22% year-to-date across all categories and customers.

  • Sales of branded products increased 8% in the first half, driving favorable product mix.

Concerns

3

  • Potential headwinds from the Iran war causing elevated commodity prices and supply pressures for fiscal '27.

  • SG&A increased 12% in Q2 FY26 to $199.2 million due to increased media and marketing spend.

  • Retail inventory levels are slightly elevated versus prior year, though management is not concerned.

Guidance & targets

CategoryTargetConfidence
Full-year net sales growth
low single digits
high materiality
High
Gross margin rate
approaching 40%
high materiality
High
Total EBITDA
north of $1 billion
high materiality
High
SG&A as % of sales
around 17% to 18%
medium materiality
High
Leverage (Net debt-to-EBITDA)
comfortably in the 3s
high materiality
High
Share repurchase program
at least 1/3 of our outstanding shares
high materiality
High
SMG 2.0 top line sales growth
incremental $1 billion
high materiality
High
SMG 2.0 e-commerce top line sales growth
upwards of $800 million
high materiality
High
Supply chain savings
at least 1% annually
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
U.S. Consumer Business
Full year net sales guidance.
—low single digits——
West Region
POS dollars growth year-to-date, strongest region.
—up nearly 15%——
Branded Products
Sales growth in the first half, partially offset by expected declines in mulch and nonbranded product sales.
—8%——
Mulch and Nonbranded Products
Expected declines, partially offsetting branded product growth.
—declines——

Product announcements

ProductTypeDetails
K-31 grass seedlaunch
Turf Builder Liquid Lawn Foodlaunch
Miracle-Gro Indoor Plant Foodlaunch
small bag soilslaunch
Ortho Mosquito and Flying insect trapslaunch
Ready-made growing kitslaunch
Turf Builder Lawn Food for kids and petslaunch
Pilot program for professional lawn and garden service providerslaunch

Deals & partnerships

Hawthorne Divestiture of the Hawthorne business.

Classified as a discontinued operation last quarter and completed its divestiture in early April.

Bonnie Plants and Gardenuity Initiative to provide ready-made growing kits.

Launched in Q2 to remove barriers to gardening and simplify the process for new gardeners.

Bonnie Plants Live goods venture.

Performing well this season with improved sell-through and quality.

Risks & headwinds

Commodity price volatility due to Iran war Fiscal '27 is a bigger unknown

elevated commodity prices

Mitigation:Will control what we can control and take pricing in fiscal '27 if necessary; will not sacrifice gross margin goals. Enacting contingency plans to minimize further impacts in the year.

Increased SG&A spend Q2 FY26

increased 12% and to $199.2 million compared with $177.8 million in the prior year quarter

Mitigation:Expected and reflects increased media and marketing spend to drive consumer takeaway of branded products; on track to full year target of 17%-18% of sales.

Retail inventory levels slightly elevated Q2 FY26

Slightly elevated versus this time last year

Mitigation:Supports the bullishness of the retailers and us on the category; not a concern for management.

What to watch in Q3 FY26

Share Repurchase Pace

Next quarter
Current First tranche of multi-year program to begin
Target Progress on buying back shares while maintaining leverage in the 3s

Why it matters

Demonstrates capital allocation discipline and commitment to shareholder returns, impacting EPS accretion.

First, we're ready to embark on the first tranche of the multiyear share repurchase program we announced last quarter and said would begin once leverage was comfortably in the 3s. We're there. The ultimate goal is to buy back at least 1/3 of our outstanding shares.

Find out whether SMG delivers this. Inve re-checks your case every morning.

Q&A highlights

How are the lawns business restage and e-commerce initiatives performing? Are there any unusual Q2 shipment or retail inventory dynamics?

Shipments remain strong into Q3, and retail inventory is slightly elevated but supportive of a bullish outlook. E-commerce is performing well with double-digit growth and market share gains, especially with new innovations. The lawns business is successfully transitioning to a 4-step solution, with strong early sell-through of Halts and new products like Turf Builder Lawn Food for kids and pets. Ortho products are also seeing success online with specific solutions.

“Shipments remain strong. Obviously, through Q2, they were strong and they remained strong for the first part of Q3. So not seeing any issues there. I'm not concerned about inventory levels. Slightly elevated versus this time last year, but I think supports the bullishness of the retailers and us on the category.”

asked by Jon Andersen · answered by Nate Baxter

2 min read 6 chapters

Detailed narrative

Strategic Vision and SMG 2.0 Growth Plan

Following the divestiture of Hawthorne and achieving a comfortable leverage ratio of 3.71x, Scotts Miracle-Gro is embarking on a new growth phase with its SMG 2.0 strategy. This multi-year plan targets an incremental $1 billion in top-line sales, a gross margin rate approaching 40%, and total EBITDA north of $1 billion by 2030. The strategy emphasizes channel and category expansion, deep investments in brands, innovation, marketing, and supply chain, with a significant focus on e-commerce and appealing to emerging consumer demographics.

E-commerce and Channel Expansion as Growth Engines

E-commerce is identified as a primary driver for SMG 2.0, projected to generate upwards of $800 million of the incremental top-line sales by 2030. The company is collaborating with retail partners to maximize digital point-of-sale through optimized product assortments and digital marketing. Beyond e-commerce, Scotts Miracle-Gro is exploring new channels, including a pilot program for professional lawn and garden service providers, reflecting an entrepreneurial approach to market testing and expansion.

Innovation and SKU Rationalization for Portfolio Optimization

The company introduced 83 new product SKUs in fiscal '26, contributing $41 million in revenue, including products like K-31 grass seed and Ortho Mosquito and Flying insect traps. Concurrently, a SKU rationalization effort aims to eliminate 30% of the lowest-performing SKUs by next fiscal year, which is expected to be margin accretive and simplify product offerings. This dual approach supports both top-line growth and margin expansion by focusing on higher-margin, innovative products suited for evolving consumer needs and online sales.

Operational Efficiency and AI Transformation

Scotts Miracle-Gro is investing in factory automation, technology implementation, and a dual-track AI transformation. This includes foundational work like building a modern data lake and implementing SAP S/4HANA, alongside parallel efforts to embed AI into core processes. The company is exploring approximately 40 AI use cases, from consumer chat agents to automated content generation, expecting AI to contribute to both top-line growth through optimized e-commerce and bottom-line savings, such as $0.5 million saved in Q2 by using AI for commercial production.

Gross Margin Expansion and Proactive Pricing Strategy

The company achieved significant gross margin improvement year-to-date, driven by a favorable mix towards higher-margin branded products and ongoing supply chain efficiencies. Management is committed to maintaining its gross margin goals and is prepared to implement pricing adjustments in fiscal '27 if commodity costs remain elevated due to global supply pressures, such as those from the Iran war. This proactive stance aims to protect profitability and ensure the company does not sacrifice its long-term margin targets.

Capital Allocation and Share Repurchase Program

With leverage now at 3.71x, the company is initiating the first tranche of a multi-year share repurchase program, with an ultimate goal to buy back at least one-third of its outstanding shares. This program is viewed as earnings accretive and a more attractive investment than M&A, given the current valuation of the company's shares. The CFO has been empowered to modulate the pace of repurchases to maintain leverage comfortably in the 3s.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.