Scotts Miracle-Gro Marijuana-Focused Subsidiary Sales Decline 28%, CEO Confirms Deal In Works With RIV Capital

The Scotts Miracle-Gro Company SMG announced its financial results Wednesday for the second quarter ended March 30, 2024, with sales reaching $1.53 billion, in line with sales in the same period of 2023. 

The report contains the results of its subsidiary Hawthorne Gardening Company, a provider of nutrients, lighting, and other materials used in the indoor and hydroponic segment that includes cannabis cultivation.

"Through the first six months of our fiscal year, we exceeded operating plan targets and made progress on the most important financial metrics driving our business," stated Jim Hagedorn, chairman, CEO and president. "We're in a favorable position to achieve our fiscal 2024 guidance as well as meet our goals for cash flow generation, debt reduction and gross margin improvement. We're a much leaner and more cost-efficient organization with a near-term focus on precision execution. At the same time, because we've stabilized and created financial flexibility, we can shift from crisis management to operating the business the way it should be run – from a position of strength and with a growth mindset."  

During the earnings call, company executives talked briefly about a potential merger with RIV Capital CNPOF.  

"While I cannot discuss the details, a deal is in the works," Hagedorn said during the earnings call. "When completed, this business combination would be a transformative moment in our long-term investment strategy in this space."  

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Q2 Fiscal 2024 Financial Summary  

• Hawthorne sales decreased 28% to $66.4 million compared to $92.7 million last year.  
• The company noted the declines were mostly due to its previously announced focus on its proprietary Signature brands and discontinuation of its third-party distributed brands business, along with continued pressure on the indoor and hydroponic industry as a whole. During the quarter, Hawthorne announced its strategic partnership with BFG Supply to change its go-to-market approach for its higher-margin Signature portfolio and to fully exit the distribution of third-party brands.  
• Shifting the Hawthorne, there’s progress. We continue to remake the business and strengthen its ability to be a profit contributor. I’ve challenged the team to achieve a $10 million profit run rate. In the past two years, Hawthorne has gone from 15 distribution centers to two and cut over 1,000 jobs operating today with less than 300 people. In our latest move to improve its economics, we’re completing the full transition to manufacturing and marketing our own brands."  
• "We believe BFG can deliver a higher service level, Hagedorn continued. "The partnership will lower Hawthorne’s cost structure throughout the year.
• GAAP and non-GAAP adjusted gross margin rates for the quarter were 30.4% and 35.3%, respectively. These compare to 26.9% and 34.7%, respectively, in the prior year.
• Net income amounted to $157.5 million or $2.77 per share compared to $109.4 million in the same period last year, or $1.95 per share.  
• Adjusted EBITDA was a gain of $396.3 million, which compares to $404.8 million in the second quarter of fiscal 2023.  

Fiscal 2024 Outlook 

The company reaffirmed its previously announced non-GAAP fiscal 2024 guidance.  The company's primary objective remains to restore a strong balance sheet with meaningful improvements in leverage and working capital by generating $575 million of adjusted EBITDA and free cash flow of $560 million.  

Price Action 

Scotts Miracle-Gro shares traded 0.69% higher at $68.71 per share during Thursday’s pre-market session. 

Photo: Courtesy of YARphotographer via Shutterstock