Scotts Miracle-Gro Reaffirms $1B Cash Flow Target, Reduces EBITDA Earnings Expectations, Cost-Saving On Track

The Scotts Miracle-Gro Company SMG updated and reduced its financial projections on Thursday for fiscal year 2024 based on financial results through the end of May, which reflects the peak of its Q3 lawn and garden season. The Ohio-based gardening giant now expects adjusted EBITDA earnings of $530 million to $540 million, which is some 20% higher than last year, but lower than previous guidance of $575 million.

"Despite the season not meeting our operating plan for topline sales and adjusted EBITDA, we are seeing year-over-year growth and feel good about our overall performance," stated Jim Hagedorn, chairman, CEO and president. "We are driving improvement in the most critical financial metrics that strengthen our ability to deliver long-term shareholder returns. By tightly managing expenses and free cash flow, we remain on track to achieve our debt reduction goal while making important investments in our brands, marketing and other value drivers. We have strengthened our financial flexibility to ensure we have the proper resources to manage POS and retailer replenishment through the summer and fall."

The company also changed the projections for its U.S. consumer segment sales growth to somewhere from 5% to 7%, from a prior estimate of high-single digits. Scotts Miracle-Gro also confirmed that it expects to complete its free cash flow target of $1 billion over two years by delivering the remainder of $560 million in fiscal 2024, meet or exceed its goal of paying down an additional $350 million in debt and drive full-year non-GAAP gross margin improvement of at least 250 basis points.

As for its cannabis-focused subsidiary, Hawthorne, the company reaffirmed its previously stated guidance that the segment's non-GAAP adjusted EBITDA will be break-even or better by year-end.

The updated guidance follows up on the second-quarter financial report released in May, which revealed sales of $1.53 billion in line with sales in the same period of 2023. Hawthorne sales decreased in the period 28% to $66.4 million compared to $92.7 million last year.

Hawthorne To Benefit From Potential Merger

During the earnings call, company executives discussed a potential merger with RIV Capital CNPOF, which was confirmed several weeks later. Cansortium Inc. CNTMF, a multi-state cannabis operator under the FLUENT brand and RIV Capital said the merger will operate in Florida, New York, Texas, and Pennsylvania, covering 25% of the U.S. population with eight cultivation and processing facilities and 42 retail dispensaries. The merger garnered support from ScottsMiracle-Gro, which plans to exchange its convertible notes in RIV Capital for non-voting shares of Cansortium, eliminating $175 million in debt.

Hawthorne could benefit from this merger, which provides the company with an important stake in a new operator running across four states.

Cost-Saving Initiative On Track

In its updated guidance, Scotts Miracle-Gro also reaffirmed that the Project Springboard cost-saving initiative will deliver run-rate annualized savings of at least $300 million by the end of fiscal 2024 along with incremental investments in media and innovation.

"Our decisive actions are contributing to sales growth, strong free cash flow generation and significantly improved year-over-year adjusted EBITDA, putting us in a position to exit 2024 with leverage below 5 times," stated Matt Garth, chief financial and administrative officer. "As we progress through the balance of our fiscal year, we will tightly manage costs while making improvements in both operational efficiency and balance sheet flexibility to ensure a solid foundation for further growth in fiscal 2025 and beyond."

Price Action

Scotts Miracle-Gro's shares were trading 0.92% lower at $66.91 per share during Friday's pre-market session.

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