The Scotts Miracle-Gro Company (SMG) Q3 2024 earnings summary

Executive summary

• Q3 2024 net sales rose 7%–7.5% year-over-year to $1.2 billion, led by 11% growth in the U.S. Consumer segment and offset by a 28%–28% decline in Hawthorne sales, though proprietary brands grew 6%.

• Adjusted net income doubled to $133.8 million, with GAAP net income at $132.1 million, and adjusted EBITDA up 86% to $236.8 million.

• Gross margin improved to 29.5% GAAP (up 1,110 bps) and 29.2% adjusted (up 790 bps), driven by lower costs and favorable mix.

• Free cash flow year-to-date approached $500 million, with a target of $560 million for the full year and at least $350 million in debt paydown by year-end.

• Strategic focus remains on margin improvement, balance sheet strengthening, and Hawthorne's path to sustained profitability.

Financial highlights

• Q3 net income was $132.1 million ($2.28 GAAP EPS, $2.31 adjusted EPS), up sharply from prior year; adjusted EBITDA was $236.8 million, up 86%.

• Q3 net sales reached $1,202.2 million (+7.5% YoY); year-to-date net sales were $3.18 billion.

• Interest expense declined 17.6%–18% year-over-year in Q3 due to lower debt levels.

• SG&A increased 15% to $147.9 million, mainly from higher incentive compensation.

• Cash provided by operating activities for nine months was $549.0 million, up from a prior year outflow.

Outlook and guidance

• Fiscal 2024 guidance reaffirmed: U.S. Consumer net sales up 5%–7%, Hawthorne down 35%–40%, adjusted EBITDA of $530–$540 million, and free cash flow target of $560 million.

• Leverage ratio targeted below 5x by year-end; three-year plan aims for 3% annual growth, >30% adjusted gross margins, $600 million adjusted EBITDA, and leverage below 3.5x.

• Hawthorne segment expects break-even or better adjusted EBITDA for the full year.

• Pricing expected to contribute at least 1% to net sales in 2025, with a modest approach due to retailer and consumer pressures.