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    SMG
    Earnings call· Mar 2026(Q2 FY26)

    SCOTTS MIRACLE-GRO Q2 FY26 earnings call SMG

    Apr 29, 2026 Source

    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

    9
    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

    4
    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——

    Operational metrics

    30
    Net sales growth
    5%
    Q2 FY26

    Total company net sales increased.

    Net sales growth
    3%
    First 6 months FY26

    Total company net sales increased.

    Branded products sales growth
    8%partially offset by expected declines in mulch and nonbranded product sales
    First half FY26

    Sales of branded products increased.

    E-commerce POS dollars growth
    22%growth in every category and customer
    Year-to-date

    E-commerce POS trends continue to demonstrate the effectiveness of our channel expansion.

    POS dollars growth
    4%
    First 6 months FY26

    Closely mirroring total net sales growth.

    Gross margin rate
    41.8%280 basis point improvement
    Q2 FY26

    GAAP gross margin rate.

    Gross margin rate
    41.8%240 basis point improvement
    Q2 FY26

    Non-GAAP gross margin rate.

    Gross margin rate
    38.5%260 basis point improvement
    First 6 months FY26

    GAAP gross margin rate.

    Gross margin rate
    38.6%230 basis points from a year ago
    First 6 months FY26

    Non-GAAP adjusted gross margin rate.

    SG&A
    $199.2 millionincreased 12%
    Q2 FY26

    Increase reflects increased media and marketing spend.

    SG&A
    $305.1 millionup 5%
    Year-to-date FY26

    Year-to-date SG&A.

    Adjusted EBITDA
    $437.4 millionversus $401.6 million a year ago
    Q2 FY26

    Adjusted EBITDA for the quarter.

    Adjusted EBITDA
    $440.2 millionnearly $38 million improvement
    Year-to-date FY26

    Year-to-date Adjusted EBITDA.

    Interest expense
    $31.3 millioncompared with $36.6 million in fiscal '25
    Q2 FY26

    Declined from lower debt balances and interest rates.

    Interest expense
    $58.5 millionversus $70.5 million in fiscal '25
    First 6 months FY26

    Year-to-date interest expense.

    Leverage (Net debt-to-EBITDA)
    3.71ximprovement of 0.7x versus a year ago
    Q2 FY26

    Result of higher EBITDA and continued deployment of free cash flow to debt reduction.

    GAAP net income from continuing operations
    $263.3 millioncompared with $220.7 million a year ago
    Q2 FY26

    GAAP net income from continuing operations for the quarter.

    Adjusted non-GAAP net income from continuing operations
    $267.8 millionversus $233.7 million last year
    Q2 FY26

    Adjusted non-GAAP net income from continuing operations for the quarter.

    GAAP diluted EPS from continuing operations
    $4.46compared with $3.78 per share a year ago
    Q2 FY26

    GAAP diluted EPS from continuing operations for the quarter.

    Adjusted non-GAAP diluted EPS from continuing operations
    $4.53versus $4 per share last year
    Q2 FY26

    Adjusted non-GAAP diluted EPS from continuing operations for the quarter.

    GAAP net income from continuing operations
    $215.6 millioncompared with $154.7 million a year ago
    First 6 months FY26

    GAAP net income from continuing operations for the first 6 months.

    Adjusted non-GAAP net income from continuing operations
    $223.3 millionversus $183.5 million in prior year
    First 6 months FY26

    Adjusted non-GAAP net income from continuing operations for the first 6 months.

    GAAP diluted EPS from continuing operations
    $3.65compared with $2.64 per share a year ago
    First 6 months FY26

    GAAP diluted EPS from continuing operations for the first 6 months.

    Adjusted non-GAAP diluted EPS from continuing operations
    $3.78versus $3.13 per share in prior year
    First 6 months FY26

    Adjusted non-GAAP diluted EPS from continuing operations for the first 6 months.

    New product SKUs introduced
    83
    Fiscal '26

    New product introductions supporting portfolio optimization.

    SKUs to be eliminated
    30%
    By next fiscal year

    Target for lowest-performing SKUs to be eliminated, expected to be margin accretive.

    AI use cases
    40
    Current

    Ranging from consumer chat and voice agents to automated content generation, intelligent product search and productivity tools.

    AI production cost savings
    $0.5 million
    Past quarter

    Savings from developing 3 commercials using AI.

    Urea as % of COGS
    <10%
    Current

    Specific commodity cost exposure.

    Halts sell-through growth
    over 20%
    Early season

    First indicator for the lawns program.

    Industry KPIs

    2
    MetricValueDetails
    Volume vs price split—
    Productivity cost savings program$35 millionUSD

    Product announcements

    8
    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

    3
    HawthorneDivestiture of the Hawthorne business.

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

    Bonnie Plants and GardenuityInitiative to provide ready-made growing kits.

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

    Bonnie PlantsLive goods venture.

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

    Risks & headwinds

    3
    Commodity price volatility due to Iran warFiscal '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 spendQ2 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 elevatedQ2 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

    5

    Share Repurchase Pace

    Next quarter
    CurrentFirst tranche of multi-year program to begin
    TargetProgress 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.

    Q&A highlights

    8

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.