The Scotts Miracle-Gro Company, a leading marketer of branded consumer lawn and garden products, has announced its results for the third quarter ending July 1st, 2023. The report highlights challenges and achievements during the period and outlines the company’s strategies for the future.
During the third quarter, the company experienced a 6 percent decline in sales, mainly driven by a substantial 40 percent decrease in the Hawthorne segment and a modest 1 percent improvement in the U.S. Consumer segment. The decrease in sales was primarily due to regional weather extremes, inflationary pressures, and price elasticity, which led to declines in retail foot traffic and volume.
Despite these challenges, the company managed to maintain strong engagement with its retail partners and reported an increase in point-of-sale (POS) dollars, reflecting the resilience of its consumer franchise. Additionally, the company gained market share in various areas, which indicates the continued strength of its brand.
The company also announced significant cost-saving measures through its Project Springboard initiative. These savings exceeded $100 million, bringing the total reductions to more than $300 million. The cost-saving efforts have helped strengthen the company’s financial position, improve cash flow, and facilitate debt paydown. Furthermore, The Scotts Miracle-Gro Company made changes to its credit facility, which lowered the total revolver capacity and increased leverage targets. This amendment provides the company with more flexibility to reduce debt and direct investments into its core business operations.
In terms of segment performance, the U.S. Consumer segment reported a 1 percent increase in sales, driven by strong growth in Growing Media net sales. In contrast, the Hawthorne segment faced a significant decline of 40 percent in sales compared to the same period last year. The company’s gross margin rates experienced declines, with GAAP and non-GAAP adjusted gross margin rates at 18.4 percent and 21.3 percent, respectively. The decline was primarily attributed to higher commodity costs, unfavorable conversion and fixed cost leverage, and one-time pandemic-driven excess and obsolete inventory write-offs. However, the gross margin rates were partially offset by net pricing and distribution savings from Project Springboard.
The company reported GAAP net income of $43.7 million, or $0.77 per diluted share, for the third quarter, compared to a loss of $443.9 million, or $8.01 per diluted share, in the prior year. Non-GAAP adjusted earnings, which exclude certain non-recurring items, were $66.0 million, or $1.17 per diluted share, compared to $110.4 million, or $1.98 per diluted share, in the same period last year.
For the first nine months of fiscal 2023, Scotts Miracle-Gro’s sales declined by 7 percent compared to the same period last year. The U.S. Consumer segment showed a 1 percent increase in sales, while the Hawthorne segment experienced a 42 percent decline. Looking ahead, the company expects total net sales to decline by approximately 10 to 11 percent for the full year, driven by declines in both the U.S. Consumer and Hawthorne segments. Operating income is projected to be 7 to 7.5 percent of sales for the year, and Adjusted EBITDA is expected to be below the prior year by about 25 percent. The company also expects a higher tax rate for the year, at 28 to 29 percent.
Despite the challenges faced during the third quarter and year-to-date, The Scotts Miracle-Gro Company remains committed to its strategic initiatives. The company is focused on investing in aggressive consumer activation programs to improve the performance of its Lawns business, which makes up a significant portion of its fall sales. Additionally, the company aims to leverage its leading positions in the multi-billion dollar cannabis space through its Hawthorne segment. By continuing to reduce expenses, improve cash flow, and pay down debt, the company aims to achieve $1 billion in cash flow by the end of the fiscal year 2024. It also seeks to drive leverage below 3.5 times to return to a more balanced and strategic capital allocation approach.
The Scotts Miracle-Gro Company’s third-quarter results indicate the challenges it faced due to market dynamics, inflationary pressures, and weather conditions. However, the company’s strong consumer franchise, market share gains, and cost-saving efforts through Project Springboard demonstrate its resilience and commitment to future growth.
As the company moves forward, its strategic focus on consumer activation programs, leveraging opportunities in the cannabis market, and maintaining a robust financial position will play pivotal roles in driving sustainable growth and delivering long-term value to shareholders.
Image provided by The Scotts Miracle-Gro Company