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    SMG
    Earnings call· Jun 2026(Q3 FY26)

    SCOTTS MIRACLE-GRO Q3 FY26 earnings call SMG

    Jul 29, 2026 Source

    Executive summary

    Scotts Miracle-Gro Q3 FY26 — Strong Performance and Reaffirmed Guidance with EPS Increase

    Scotts Miracle-Gro delivered a strong Q3 FY26, reaffirming its full-year outlook and raising EPS guidance, driven by effective execution of its SMG 2.0 strategy. The company is focusing on higher-margin branded products, digital channel expansion, and operational efficiencies, which are contributing to margin expansion and debt reduction despite commodity and freight headwinds. Management is re-evaluating its capital allocation strategy and long-term financial targets, with more details to be shared at an upcoming Investor Day.

    Highlights

    5

    • Total company net sales increased 1% to $1.17 billion in Q3, and 2% to $2.99 billion year-to-date.

    • Non-GAAP adjusted EPS from continuing operations increased to $2.82 per share in Q3 from $2.62 last year, and full-year guidance raised to $4.30-$4.45 per share.

    • Year-to-date non-GAAP gross margin rate improved by 130 basis points to 35.7% (GAAP) / 35.8% (non-GAAP).

    • Leverage ratio improved to 3.78x from 4.15x a year ago.

    • E-commerce POS dollars were up 27% year-to-date, now representing 13% of total POS dollars (a 300 basis point improvement).

    Concerns

    4

    • Q3 GAAP gross margin rate declined to 31.2% (GAAP) / 31.3% (non-GAAP) from 32.1% / 32.3% in prior year, impacted by higher freight and commodity costs.

    • Retailer inventories were slightly elevated over prior year by high single-digit percentages, expected to slow Q4 purchasing activity.

    • Full-year U.S. consumer sales growth is expected to be at the lower end of the sales guide due to anticipated slowdown in Q4 purchasing.

    • Q3 GAAP net income from continuing operations declined to $103.6 million or $1.75 per share from $154.7 million or $2.64 per share a year ago, due to $64 million in impairment, restructuring, and nonrecurring items.

    Guidance & targets

    9
    CategoryTargetConfidence
    Non-GAAP adjusted EPS from continuing operations
    $4.30 to $4.45 per share
    high materiality
    High
    Full-year U.S. consumer sales growth
    Lower end of low single-digit growth
    medium materiality
    Medium
    Leverage ratio
    Below 3.5x
    high materiality
    High
    SMG 2.0 long-term financial targets (net sales)
    $1 billion increase in net sales
    high materiality
    Medium
    SMG 2.0 long-term financial targets (EBITDA)
    $1 billion increase in EBITDA
    high materiality
    Medium
    SG&A spend
    Around 17% to 18% of sales
    medium materiality
    High
    Commodity cost impact
    No further commodity impacts
    medium materiality
    High
    Gross margin expansion
    Continued gross margin improvement
    high materiality
    High
    Sales growth algorithm
    Rebound towards 3% sales growth
    high materiality
    Medium

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    U.S. consumer business
    Year-to-date performance mirrors total company net sales. Full year sales growth expected at the lower end of guidance due to anticipated slowdown in Q4 purchasing activity.
    Net sales growth: 2% YTDFull year net sales guidance: lower end of low single-digit growth
    		$2.74 billionincreased 2%——
    E-commerce
    Continues to be a significant growth opportunity, with growth across every category and customer.
    POS dollars: up 27% YTDShare of total POS dollars: 13%Improvement in share of total POS dollars: 300 basis points over last year
    		—up 27%——
    Ortho control products
    Strongest performance among branded product categories.
    Branded sales growth: 15%
    		—up 15%——
    Scott's grassed
    Strong performance among branded product categories.
    Branded sales growth: 11%
    		—up 11%——
    Soils
    Strong performance among branded product categories.
    Branded sales growth: 7%
    		—up 7%——

    Operational metrics

    35
    Total company net sales
    $1.17 billionincreased 1%
    Q3 FY26
    Total company net sales
    $2.99 billionincreased 2%
    YTD FY26
    Branded product sales growth
    4.5%
    YTD FY26

    Contributed to current year growth.

    Innovation gross sales contribution
    $75 million
    FY26

    From innovation introduced this fiscal year.

    Innovation gross sales contribution
    $278 million
    YTD FY26

    From innovation launched in the last 3 years, year-to-date through June.

    Low-margin commodity sales exited
    $100 million
    FY26

    Deliberately exited to expand high-margin branded portfolio.

    SKUs removed
    30%
    By end of FY27

    To further balance portfolio and support margin growth.

    Total POS dollars growth
    1.4%
    YTD FY26

    Closely aligning with net sales growth.

    Total POS units growth
    2.3%
    YTD FY26

    Closely aligning with net sales growth.

    Media mix digital
    80%up from 68% last year
    FY26

    Shift in deployment of media investments.

    Media mix traditional
    20%down from 32% last year
    FY26

    Shift in deployment of media investments.

    Supply chain net savings
    1%
    By year-end FY26

    Helping to offset geopolitical-driven commodity volatility and contributing to gross margin expansion.

    GAAP gross margin rate
    35.7%130 basis point improvement over prior year
    YTD FY26
    GAAP gross margin rate
    31.2%versus 32.1% in the prior year
    Q3 FY26

    Impacted by higher freight and commodity costs.

    Non-GAAP gross margin rate
    35.8%versus 34.7% a year ago
    YTD FY26

    Favorable mix, supply chain savings, and pricing actions contributed to improvement.

    Non-GAAP gross margin rate
    31.3%compared with 32.3% in the prior year
    Q3 FY26

    Impacted by higher freight and commodity costs.

    SG&A
    $145.6 millionincreased slightly from $144.8 million in fiscal '25
    Q3 FY26

    Expected increase reflecting increased media and marketing spend.

    SG&A
    $450.7 millionincreased 3% to $450.7 million from $436.2 million
    YTD FY26

    Expected increase reflecting increased media and marketing spend.

    Non-GAAP adjusted EBITDA
    $246.3 millionversus $253.5 million a year ago
    Q3 FY26

    Decline attributable to higher freight and commodity costs.

    Non-GAAP adjusted EBITDA
    $686.6 million$31 million or 5% improvement over $655.9 million
    YTD FY26
    Interest expense
    $28 millioncompared with $31.8 million in fiscal '25
    Q3 FY26

    Declined from lower debt balances and interest rates.

    Interest expense
    $86.5 millionversus $102.2 million in fiscal '25
    YTD FY26

    Declined from lower debt balances and interest rates.

    Leverage ratio
    3.78xcompared with 4.15x a year ago, an improvement of approximately 0.4x
    As of Q3 FY26

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

    GAAP net income from continuing operations
    $103.6 millioncompared with $154.7 million a year ago
    Q3 FY26

    Included executive severance charges and noncash impairments of noncore passive investments.

    GAAP EPS from continuing operations
    $1.75compared with $2.64 per share a year ago
    Q3 FY26

    Included executive severance charges and noncash impairments of noncore passive investments.

    Non-GAAP adjusted net income from continuing operations
    $166.9 millionversus $153.4 million last year
    Q3 FY26

    Excludes impairment, restructuring, and other nonrecurring items.

    Non-GAAP adjusted EPS from continuing operations
    $2.82versus $2.62 per share last year
    Q3 FY26

    Excludes impairment, restructuring, and other nonrecurring items.

    GAAP net income from continuing operations
    $319.1 millioncompared with $309.4 million a year ago
    YTD FY26
    GAAP EPS from continuing operations
    $5.40compared with $5.28 per share a year ago
    YTD FY26
    Non-GAAP adjusted net income from continuing operations
    $390.2 millionversus $336.9 million a year ago
    YTD FY26
    Non-GAAP adjusted EPS from continuing operations
    $6.60versus $5.75 per share in the prior year
    YTD FY26
    Commodity cost increase
    $15 millionabove our initial plan for the year
    Full-year FY26

    Due to Iran war impact.

    Retailer inventories
    slightly elevatedover prior year by high single-digit percentages
    Entering Q4 FY26

    Expected to slow Q4 purchasing activity.

    Consumer perception lawn & garden care
    74%
    Recent

    Strong consumer engagement in categories.

    Consumer perception pest control
    82%
    Recent

    Strong consumer engagement in categories.

    Industry KPIs

    2
    MetricValueDetails
    Volume vs price split1.4% (dollars), 2.3% (units)%
    Productivity cost savings program1%% of sales

    Product announcements

    5
    ProductTypeDetails
    Miracle-Gro organic line expansionexpansion
    Core Miracle-Gro portfolio modernizationupdate
    Scott's Kentucky 31 Grasslaunch
    Turf Builder lawn foodlaunch
    Ortho Mosquito Killen Preventlaunch

    Deals & partnerships

    1
    LactaPartnership to add to top line growth.

    Recently announced partnership.

    Capital programs

    2
    Transformational IT automation and upgradesunderway

    Benefit: Contributes to supply chain savings (net savings of roughly 1% of sales by year-end).

    Part of high ROI capital investments supporting SMG 2.0.

    Growing media and fertilizer plants upgradesunderway

    Benefit: Contributes to supply chain savings (net savings of roughly 1% of sales by year-end).

    Part of high ROI capital investments supporting SMG 2.0.

    Risks & headwinds

    4
    Higher freight and commodity costsQ3 FY26, Full-year FY26

    Impacted Q3 GAAP gross margin rate (31.2% vs 32.1% prior year) and non-GAAP rate (31.3% vs 32.3% prior year). Caused Q3 non-GAAP adjusted EBITDA to decline to $246.3 million from $253.5 million. Full-year commodity costs expected to be $15 million above initial plan.

    Mitigation: Effective protection of margin profile, hedging strategies, pricing actions, supply chain savings, cost-out initiatives. No further commodity impacts expected through end of FY26 as costs are locked.

    Elevated retailer inventoriesEntering Q4 FY26

    Slightly elevated over prior year by high single-digit percentages.

    Mitigation: Retailers intend to focus on joint consumer activation programs for late summer and early fall to drive sell-through. Company is working with customers to bring down inventories.

    Geopolitical-driven commodity volatility (Iran war)FY26, looking ahead to FY27

    Led to $15 million increase in commodity costs above initial plan for FY26.

    Mitigation: Sourcing contingencies, hedging strategies (e.g., urea), pricing actions (under discussion with retail partners), supply chain savings.

    Non-recurring items impacting GAAP resultsQ3 FY26

    $64 million in Q3 FY26, primarily executive severance charges and noncash impairments of noncore passive investments.

    Mitigation: These are non-recurring and excluded from non-GAAP adjusted results.

    What to watch in Q4 FY26

    5

    Retailer inventory levels

    Next quarter (Q4 FY26 close, Q1 FY27 start)
    Currentslightly elevated over prior year by high single-digit percentages
    TargetReduced to normal levels

    Why it matters

    Elevated inventories could further impact Q4 purchasing and potentially Q1 FY27 orders, affecting sales growth.

    As a result of the POS softness entering Q4, retailer inventories were slightly elevated over prior year by high single-digit percentages. While retailers intend to focus on joint consumer activation programs for late summer and early fall to drive sell-through, we do expect a slowdown in the fourth quarter purchasing activity.

    Q&A highlights

    6

    Asked about retailer inventory levels exiting the fiscal year and programming to address them, and for a preview of the re-evaluated capital allocation strategy.

    Nate Baxter explained that retailer inventories are slightly elevated due to slow April/May weather, leading to a conservative Q4 sales forecast at the lower end of guidance, but noted strong June sales and ongoing efforts with retailers. Mark Scheiwer added that the team is working to bring down inventories and doesn't foresee it as a "massive impediment" for FY27. On capital allocation, Mark reiterated a balanced approach, focusing on quarterly dividends, reinvestment in the business (advertising, R&D, CapEx), and a measured approach to share repurchases, mindful of leverage. More details will be provided at Investor Day.

    “Yes. So let's start with April, May, it was a little slow weather-wise, June actually one of our best Junes ever broke records. But as a result of that, we're sort of forecasting for Q4 to be at the lower end because we're anticipating retailer inventories being slightly higher than they were last year.”

    asked by Jon Andersen · answered by Nate Baxter

    2 min read7 chapters

    Detailed Narrative

    01

    SMG 2.0 Strategy and Leadership Transition

    Nate Baxter, the new CEO, outlined his initial priorities, including optimizing organizational structure, hiring a Chief Innovation Officer and Chief Information Officer, and assessing talent. He emphasized that the SMG 2.0 strategy focuses on innovation, consumer engagement, and leveraging digital platforms for sustainable growth, with long-term financial targets of $1 billion net sales and $1 billion EBITDA remaining, though potentially pushed beyond 2030. The immediate focus is on quality earnings growth and margin expansion, which will naturally lead to these milestones.

    02

    Product Portfolio Optimization

    The company deliberately exited approximately $100 million of low-margin commodity mulch and soil sales to aggressively expand its high-margin, high-growth branded portfolio. This strategic shift is proving successful, with branded product sales up 4.5% year-to-date. Innovation introduced this fiscal year has contributed $75 million in gross sales, and innovation launched in the last three years accounted for $278 million in gross sales year-to-date through June.

    03

    SKU Rationalization and Innovation Approach

    Scotts Miracle-Gro is actively sunsetting about 30% of its lowest-performing SKUs by the close of fiscal '27, having achieved approximately two-thirds of this goal. This action aims to further balance the portfolio and support margin growth. A new approach to innovation involves introducing products first through e-commerce to gain insights and build consumer demand, then securing shelf listings at brick-and-mortar stores, which is expected to accelerate product launches.

    04

    Channel Expansion and Digital Engagement

    E-commerce continues to be a significant growth driver, with POS dollars up 27% year-to-date and now representing 13% of total POS dollars, a 300 basis point improvement over last year. The company has also expanded its presence in historically underpenetrated retail channels such as club, hardware, and rural farm and fleet, where some retailers have seen double-digit POS growth. Media investments have shifted, with 80% now digital (up from 68% last year) and 20% traditional.

    05

    Operational Efficiencies and Supply Chain

    The company continues to outperform with supply chain savings, expecting a net savings of roughly 1% of sales by year-end. These savings are helping to offset geopolitical-driven commodity volatility and contribute to gross margin expansion. Much of this has been driven through capital investments to support SMG 2.0, including transformational IT automation and upgrades to growing media and fertilizer plants.

    06

    Consumer Resilience and Category Strength

    Despite broader market volatility🌐, the lawn and garden category continues to grow, demonstrating consumer resilience. Recent consumer research indicates that 74% of respondents consider lawn and garden care a necessity, and 82% say the same for pest control. This strong consumer engagement in the categories bodes well for SMG 2.0 and is reflected in market share gains in targeted strategic areas.

    07

    Capital Allocation Re-evaluation

    Management is re-evaluating its capital allocation strategy, including previously announced financial targets and share repurchase initiatives. The company is committed to a balanced capital allocation strategy, including continued quarterly dividends. A measured approach to share repurchases will be taken, mindful of leverage, with more detailed plans to be discussed at the upcoming Investor Day.

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