Business Context and Reporting Period
Company: The Scotts Miracle-Gro Company (SMG)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended March 28, 2026
Business Overview: SMG manufactures and markets lawn and garden care products, primarily in North America. The business is highly seasonal, with over 75% of annual net sales occurring in the second and third fiscal quarters. The Company recently completed the divestiture of its Hawthorne business (indoor/hydroponic gardening), which is now reported as a discontinued operation.
Key Financial Metrics
| Metric (in millions) | Three Months Ended March 28, 2026 |
Three Months Ended March 29, 2025 |
Six Months Ended March 28, 2026 |
Six Months Ended March 29, 2025 |
|---|---|---|---|---|
| Net Sales | $1,459.5 | $1,389.7 | $1,814.0 | $1,756.3 |
| Gross Margin | $610.5 (41.8%) | $542.1 (39.0%) | $699.2 (38.5%) | $630.6 (35.9%) |
| Income from Operations | $401.8 | $349.7 | $380.0 | $303.9 |
| Net Income (Continuing Ops) | $263.3 | $220.7 | $215.6 | $154.7 |
| Net Income (Total) | $238.6 | $217.5 | $113.6 | $148.0 |
| Diluted EPS (Total) | $4.04 | $3.72 | $1.93 | $2.53 |
| Cash Flow from Operations | — | — | $(150.4) | $(257.2) |
| Total Debt | $2,360.8 | $2,563.1 | $2,360.8 | $2,563.1 |
| Cash & Equivalents | $6.2 | $8.7 | $6.2 | $8.7 |
Note: Total Net Income for the six months ended March 28, 2026, includes a significant loss from discontinued operations of $102.0 million.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 5.0% for the quarter and 3.3% for the six-month period, driven by higher volume in soils, grass seed, and fertilizer, increased pricing, and higher Roundup marketing agreement sales.
- Margin Expansion: Gross margin rate improved to 41.8% (Q2) and 38.5% (6M) compared to 39.0% and 35.9% in the prior year, aided by favorable product mix and lower restructuring charges.
- Discontinued Operations: The Hawthorne business was classified as held for sale and subsequently sold. This resulted in a pre-tax valuation charge of $134.4 million for the six months ended March 28, 2026, significantly impacting total net income.
- Restructuring Costs: Impairment, restructuring, and other charges decreased significantly to $5.2 million for the six months ended March 28, 2026, compared to $33.7 million in the prior year period.
- Interest Expense: Decreased 17.0% for the six-month period due to lower average borrowings and a reduced weighted average interest rate.
Guidance, Outlook, and Risks
- Divestiture Completion: The sale of the Hawthorne business in North America was completed on April 8, 2026, for Vireo Growth Inc. stock and a warrant. The transaction resulted in an ordinary taxable loss expected to reduce future cash taxes.
- Liquidity: The Company maintains a $2.0 billion credit facility (Seventh A&R Credit Agreement) with $1,155.6 million available. The leverage ratio was 3.71x and interest coverage ratio was 5.62x as of March 28, 2026, well within covenant limits.
- Share Repurchases: A $500 million share repurchase program was authorized in December 2025. No repurchases were made under this specific authorization as of March 28, 2026, though minor purchases occurred for tax withholding.
- Risks: Management cites macroeconomic conditions (inflation, interest rates), geopolitical uncertainty, and supply chain disruptions as key risks. The Company is also defending against securities litigation regarding alleged misstatements on inventories and sales.
- Outlook: No specific numerical guidance for the full fiscal year was provided in this filing text. Management expects cash flows from operations and borrowings to meet debt service and working capital needs.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the final sale price and post-closing adjustments for the Hawthorne divestiture to understand the full financial impact of the $134.4 million valuation charge.
- Seasonality: Confirm that Q2 results align with historical seasonality patterns, as over 75% of annual sales occur in Q2 and Q3.
- Debt Maturity: Note the $250 million 5.250% Senior Notes maturing in December 2026; verify the Company's plan to repay this using cash flow or credit facility borrowings.
- Legal Proceedings: Monitor the status of the consolidated securities litigation (In re The Scotts Miracle-Gro Company Securities Litigation) and potential asbestos-related claims.
- Roundup Agreement: Review the terms of the exclusive marketing agreement with Monsanto (Bayer) regarding Roundup, as it contributes significantly to net sales and gross margin.