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Scotts Miracle-Gro (SMG) Q3 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q3 FY26)· Materials· Jul 29, 2026

Source: earnings call transcript

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

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

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%——

Product announcements

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

Lacta Partnership to add to top line growth.

Recently announced partnership.

Capital programs

Transformational IT automation and upgrades underway

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 upgrades underway

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

Higher freight and commodity costs Q3 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 inventories Entering 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 results Q3 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

Retailer inventory levels

Next quarter (Q4 FY26 close, Q1 FY27 start)
Current slightly elevated over prior year by high single-digit percentages
Target Reduced 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.

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Q&A highlights

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 read 7 chapters

Detailed narrative

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.

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.

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.

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.

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.

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.

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.

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