Business Context and Reporting Period
Company: The Scotts Miracle-Gro Company (SMG)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 27, 2026 (Third Quarter of Fiscal 2026)
Business Overview: SMG is a leading marketer of branded consumer lawn and garden products 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 operates two primary segments: U.S. Consumer and Other (primarily Canada).
Key Financial Metrics
| Metric (in millions) | Three Months Ended June 27, 2026 |
Nine Months Ended June 27, 2026 |
Nine Months Ended June 28, 2025 |
|---|---|---|---|
| Net Sales | $1,172.1 | $2,986.1 | $2,915.7 |
| Gross Margin | $365.9 (31.2%) | $1,065.1 (35.7%) | $1,003.3 (34.4%) |
| Income from Operations | $169.6 | $549.7 | $525.7 |
| Net Income (Continuing Ops) | $103.6 | $319.1 | $309.4 |
| Net Income (Total) | $112.2 | $225.8 | $297.1 |
| Diluted EPS (Total) | $1.90 | $3.82 | $5.07 |
| Operating Cash Flow | N/A | $195.2 | $197.2 |
| Total Debt | $2,125.6 | $2,125.6 | $2,202.6 |
| Cash & Equivalents | $27.7 | $27.7 | $39.6 |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 1.1% in the quarter and 2.4% for the nine-month period, driven by favorable product mix (higher branded products) and volume in the "Other" segment, partially offset by lower mulch sales.
- Profitability Decline (Quarterly): Income from operations decreased 23.5% year-over-year in the quarter, primarily due to a $47.0 million charge for impairment, restructuring, and other items, and a lower gross margin rate.
- Profitability Increase (YTD): Income from operations increased 4.6% year-over-year for the nine months, driven by higher sales and gross margin rates, despite higher SG&A and impairment charges.
- Discontinued Operations: The Company completed the sale of its Hawthorne business (indoor/hydroponic gardening) in April 2026. This resulted in a $101.8 million pre-tax loss on the sale for the nine-month period, significantly impacting total net income.
- Restructuring Charges: Total impairment, restructuring, and other charges were $48.2 million for the quarter and $53.5 million for the nine months, compared to $1.0 million and $34.5 million in the prior year periods. This includes $21.5 million in severance charges and $16.6 million in credit losses on investments.
Guidance, Outlook, and Risks
- Management Commentary: Management highlighted the completion of the Hawthorne divestiture as a strategic shift. The Company is monitoring macroeconomic conditions, including elevated interest rates, inflation, and geopolitical uncertainty.
- Leadership Change: Nathan E. Baxter was named President and CEO effective June 26, 2026, succeeding James Hagedorn.
- Liquidity: The Company maintains a leverage ratio of 3.78 (well below the 5.00 covenant limit) and an interest coverage ratio of 5.67. Borrowing availability under the credit facility is $1,381.8 million.
- Capital Allocation: The Board authorized a $500.0 million share repurchase program in December 2025; no repurchases have been made under this specific authorization as of June 27, 2026. Dividends of $0.66 per share were declared in the quarter.
- Risks: Key risks include the impact of the Hawthorne divestiture on future earnings, potential losses on Vireo equity securities received as consideration, ongoing securities litigation regarding inventory and sales disclosures, and environmental liabilities.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the long-term financial impact of the Hawthorne divestiture and the valuation volatility of the Vireo equity securities received ($81.3 million fair value as of June 27, 2026).
- Restructuring Costs: Confirm the run-rate of the $53.5 million in impairment and restructuring charges recorded YTD and whether these are one-time or recurring.
- Debt Maturity: Note the $250.0 million Senior Notes due in December 2026 are classified as current liabilities; verify the Company's plan to repay this using cash flow or credit facilities.
- Legal Proceedings: Monitor the status of the consolidated securities litigation (In re The Scotts Miracle-Gro Company Securities Litigation) regarding alleged misstatements on inventories and sales.
- Seasonality: Acknowledge that Q3 results are heavily weighted by seasonality; Q4 results will be significantly lower in revenue.