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Scotts Miracle-Gro Company reported its third-quarter earnings for 2025, showcasing a notable performance that exceeded earnings expectations. The company reported an actual earnings per share (EPS) of $2.59, surpassing the forecasted $2.25, a 15.11% surprise. Despite this earnings beat, Scotts Miracle-Gro’s revenue came in at $1.19 billion, slightly below the anticipated $1.23 billion. Following the earnings announcement, the company’s stock experienced a premarket increase of 0.84% to $68.43, although it had declined by 9.6% in regular trading the previous day. According to InvestingPro analysis, the stock appears slightly undervalued based on its Fair Value calculations, with a beta of 1.98 indicating higher-than-market volatility.
Key Takeaways
- Scotts Miracle-Gro’s EPS exceeded expectations by 15.11%.
- Revenue fell short of forecasts by 3.25%.
- The company’s stock rose 0.84% in premarket trading after the earnings release.
- Gross margin improved by nearly 300 basis points.
- The company reaffirmed its EBITDA guidance for the year.
Company Performance
Scotts Miracle-Gro demonstrated strong performance in the third quarter of 2025, with U.S. Consumer net sales increasing by 1% to $1.03 billion. Year-to-date U.S. Consumer net sales reached $2.68 billion, reflecting a 1% organic growth. The company also saw a 9% increase in adjusted EBITDA, reaching $663 million, and a significant improvement in gross margin by nearly 300 basis points. These results underscore the company’s competitive positioning and operational efficiency in the lawn and garden market. InvestingPro data reveals the company maintains an impressive free cash flow yield of 11% and has consistently paid dividends for 21 consecutive years, demonstrating strong financial discipline.
Financial Highlights
- Revenue: $1.19 billion, a slight decrease from the forecasted $1.23 billion.
- Earnings per share: $2.59, compared to a forecast of $2.25.
- Adjusted EBITDA: $663 million, a 9% increase.
- Non-GAAP adjusted net income: $332.7 million or $5.68 per share.
- Gross margin: Improved by nearly 300 basis points.
Earnings vs. Forecast
Scotts Miracle-Gro reported an EPS of $2.59, exceeding the forecasted $2.25 by 15.11%. However, revenue fell short of expectations, coming in at $1.19 billion against a forecast of $1.23 billion. The EPS surprise is significant, reflecting the company’s ability to manage costs and improve margins despite revenue challenges.
Market Reaction
Following the earnings announcement, Scotts Miracle-Gro’s stock saw a modest premarket increase of 0.84% to $68.43. This comes after a 9.6% decline in regular trading the previous day, indicating a mixed investor sentiment. The stock’s movement remains within its 52-week range, with a high of $93.9 and a low of $45.61, suggesting room for recovery as the market digests the earnings results. InvestingPro subscribers have access to 10 additional exclusive ProTips and comprehensive valuation metrics that could help navigate this volatile stock’s potential, including detailed analysis of its current trading multiples and growth prospects.
Outlook & Guidance
The company reaffirmed its EBITDA guidance of $570 to $590 million for the year. Scotts Miracle-Gro is targeting sustained 3% annual U.S. Consumer sales growth and aims to expand its gross margin to the mid-30% range. The company plans to continue investing in brand innovation and digital channels, with a focus on pricing adjustments in FY26. With a current EBITDA of $477.4M and a market capitalization of $3.54B, detailed financial health metrics available on InvestingPro suggest the company is well-positioned to achieve its guidance targets.
Executive Commentary
CEO Jim Hagedorn emphasized the company’s strong performance, stating, "We’re delivering on all our key financial metrics." He also highlighted the company’s competitive position, saying, "We have the most powerful franchise in lawn and garden, and we’re going to make it even better."
Risks and Challenges
- Revenue Shortfall: The company needs to address the revenue miss to maintain investor confidence.
- Market Volatility: Stock price fluctuations may continue as the market evaluates the earnings results.
- Supply Chain: Ongoing improvements are essential to achieving cost savings targets.
- Economic Conditions: Macroeconomic factors could impact consumer spending in the lawn and garden sector.
- Competitive Pressure: Maintaining market share gains will require ongoing innovation and strategic execution.
Q&A
During the earnings call, analysts inquired about retailer inventory adjustments and the company’s strategy for gross margin improvement. The management addressed these concerns, emphasizing the potential for higher growth beyond conservative estimates and the importance of transformation and efficiency initiatives.
Full transcript - Scotts Miracle-Gro Comp (SMG) Q3 2025:
Brad Shelton, Head of Investor Relations, ScottsMurgleGrow: Good morning. Welcome to ScottsMurgleGrow’s Third Quarter twenty twenty five Earnings Webcast. I’m Brad Shelton, Head of Investor Relations. Speaking today are Chairman and CEO, Jim Hagedorn and Chief Financial Officer and Chief Accounting Officer, Mark Shiwer. Jim will provide a business update, followed by Mark with a review of our financial results.
In conjunction with our commentary today, please review our earnings release and supplemental financial presentation slides, which were published on our website at investor.scotts.com prior to this webcast. During our review, we will make forward looking statements and discuss certain non GAAP financial measures. Please be aware that our actual results could differ materially from what we share today. Please refer to our Form 10 ks filed with the SEC for details of the full range of risk factors that could impact our results. Following the webcast, President and Chief Operating Officer, Nate Baxter and Executive Vice President and Chief of Staff, Chris Hagedorn, will join Jim and Mark for an audio only Q and A session.
To listen to the Q and A, simply remain on this webcast. To participate, please join by the audio link shared in our press release. As always, today’s session will be recorded. An archived version will be published on our website. For further discussion after the call, please email or call me directly.
With that, let’s get started with Jim’s business update.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow: Thanks Brad, and good morning everyone. Today, I’m going to focus on two big topics. The first is our performance. We’re delivering on all our key financial metrics. We’ve also gained another 2% of market share on top of last year’s share gains.
What’s even more impressive is POS units across our categories are up 8% on the year. They’re keeping pace with fiscal twenty twenty four trend that saw us drive 9% gains last year. It’s clear our marketing and activation programs are working, and our consumer is highly engaged. The year is playing out the way we had hoped, even though weather was not particularly great in the early season. The second thing I’ll cover is our transformation and where we’re headed.
For most of the past two years, we’ve been focusing on internal initiatives to get our cost structure right, achieve efficiencies, and reorganize around our superpowers: our brands, supply chain, sales force, and R and D. We put completely new teams in place to lead many facets of our business from marketing and sales to supply chain. And we’ve made a ton of progress. We’ve improved our balance sheet, gotten our leverage to a more normal level, increased profitability, and given ourselves greater flexibility to reinvest in those superpowers. We continue adopt technology to drive further productivity and efficiency improvements well into the future.
The next thing in our transformation checklist is a shift to outward facing initiatives involving our brands and our relationships with our consumers. We have the most powerful franchise in lawn and garden, and we’re going to make it even better. We’re deploying more resources and injecting new thinking into our approaches to marketing, messaging, channel expansion, and innovation. We’ll connect with consumers differently, communicate with them differently, and advertise differently. All this transformation work, both internally and externally, is setting us up to create a world class consumer goods company that brings more consumers into our category and achieves greater levels of growth.
Before I dig deeper into transformation, I want to address our results this year. With a clear view into the final months of fiscal twenty five, we’re reaffirming our EBITDA guidance and expect to fully deliver on our top and bottom line metrics. U. S. Consumer sales are in line with our guidance of low single digit growth.
Year to date, EBITDA increased 9%, EPS rose 24%, leverage improved by more than 1.25 turns, and gross margin is above 30%. We’re accomplishing what we set out to do. As I said, POS is a good story. The POS unit increase so far this year has been led by soils at plus 12%, mulch increased 8%, controls up 3%. Lawns is a special example.
POS units for branded lawn fertilizers are up 1%. Haltz, our early season fertilizer product, had a 25% unit increase over prior year, while grass seed units were up 16%. You may recall that I asked the team to hold the line on this high margin business that’s been on a unit volume decline in recent years. They’ve done a great job of putting together a program to start reversing the trend. There’s a regional component underlying these POS numbers.
Weather challenges in early Q3 impacted the lawns business. It was an extremely late breaking spring in the Northeast, and Texas was saddled with lingering cold and rain. But we’re better at navigating this unpredictability. Nate and his planning group have a lot of tools that enable us to adjust and maximize our promotional and advertising activities. If one region is getting bad weather, we strategically shift our media plans to where it’s better.
And that’s what we did in lawns. When it became clear that challenges in Texas would cause us to miss our Bonus S target for POS and consistent poor weather in the Northeast would push back the season, we redirected those resources to the Midwest. Let me take you through those Midwest numbers through Q3. Of the big regions, it had more traditional weather patterns and best reflects the results of the changes that we made. Across the entire branded lawns portfolio, POS units were up 16% in the Midwest Region.
Lawn fertilizer exceeded expectations at plus 9%, as did grass seed, which increased 23%. Spreader POS units, which often indicate newer users entering the category, also grew by 24%. What lawns was able to drive in the Midwest more than offset what we were dealing with in Texas and the Northeast. Overall, our company’s performance demonstrates the strength of our consumer business. Lawn and Garden is extremely healthy, and no one can provide the solutions we do, and no one can drive consumer engagement like we can.
Here’s some more context. Our unit volume growth since 2019 is plus 30%. Lawn and Garden is resilient, and there aren’t many industries out there that can achieve this kind of growth. U. S.
Consumer sales are also tracking to one of our longer term priorities: sustained sales growth averaging 3% annually. In 2024, our consumer sales were up 6%. Add that to this year’s growth path, and we’re tracking to be where we said we want to be. When we first embarked on our transformation journey, I told my team members we must be willing to challenge the status quo and stop doing things the same way. We had to reprioritize, streamline, and find ways to invest more in our superpowers.
That’s the impetus behind the internal transformation work. We have significantly reduced costs and driven efficiencies. At the same time, we’re ramping up technology in our supply chain, from automated packaging and advanced assembly robotics to drone technology for inventory control. And we still have more work to do. In fact, a sizable part of our planned capital investment spend from fiscal ’twenty five through ’twenty eight is earmarked for transformation related projects.
We continue to expand our use of AI. Marketing is in the early stages of using it to churn out consumer facing content, and an AI bot is giving our in store sales teams fast access to product information. An AI chat agent is on our brand sites and providing consumers with support. As we look to Q4 and fiscal twenty six, our transformation work will shift outward. To bring new consumers into Scotts Miracle Gro, we must get better at addressing their needs and wants.
Here’s what our research shows. Lawn and garden is part of a broader wellness lifestyle for more consumers. It’s no longer just about outdoor upkeep. It’s a source of well-being and expression in outdoor and indoor spaces. Consumers discover and engage brands through digital experiences first.
They expect the brands to be where they spend time. Consumers are personalizing lawn and garden purchases based on their values. This includes native plants for biodiversity, container gardens for smaller spaces, and organic herbs for cooking. Today’s consumers want options that align with their priorities, and that includes products that are safe around their families and their pets. As part of our continued success, we’ll focus on the following: One, we’ll meet consumers where they are.
The retail store is important for most consumers, and we’ll continue to invest in driving store traffic through joint retailer programs and television, news, and sports advertising. But we’ll also shift more advertising and marketing resources to where younger consumers gather and go for information. This includes streaming services, social media sites, influencers, and places like Substack, YouTube, and Reddit. There’s a huge potential in these online venues. The gardening thread alone on Reddit has over 8,000,000 members.
Two will develop fresh messaging that speaks to their needs, often building on our work with the OG influencer Martha Stewart, our Chief Guarding Officer. We’re creating a bank of young influencers who inspire consumers to come into our world. Traditionally, our marketing messages have centered on product efficacy and results. While that’s important, our creative approaches will paint a bigger picture for consumers, one that creates emotional connections to lawn and garden as being integral to their lifestyles. Three, we will expand in e commerce, including retailer sites, our own ecom platform, and social media.
We’ll be on Instagram, TikTok, and other places in bigger ways. This year, we made a stronger push to engage consumers through e commerce. And we’ve driven a 54% increase in online POS unit sales. This month, we launched Ortho’s new mosquito control product for the first time through a TikTok store. And we sold out in one day.
We will go further down this digital road in twenty twenty six. Four, our R and D pipeline is healthy and leans more heavily to emerging consumers, who will be our core consumer in the next ten years. It includes more natural and organic solutions, along with products that are simpler to use. We also have a team committed to the future development of biological solutions as an alternative to synthetics. Miracle Gro Organic demonstrates how effective this can be.
It’s now about one fifth of our total soil sales, and it’s increasing. Much of the engagement with this product line has come from new consumers. All of this transformation talk takes me back to lawns. The team established a foundation this year by simplifying promotions and refocusing marketing efforts around the value of feeding, not just once, but multiple times to get the best results. And it’s working.
This is a down payment on the future of this business. The team is now remaking the entire portfolio starting in fiscal twenty six. And I’ve asked John Sass, our Senior Vice President of Lawns, to tell you about it.
John Sass, Senior Vice President of Lawns, ScottsMurgleGrow: Thanks, Jim, and hello, everyone. As you just heard, we’re in the middle of a radical transformation of our lawns business, and the early success we are seeing this year is just the first step in remaking of our Turf Builder portfolio. Now, don’t use the word transformation lightly when it comes to what we’re doing on lawns. We have hit the reset button, challenging every aspect of this business and our conventional way of thinking. I could tell you this has been an all hands on deck effort, and the result is going to be an entirely new product line laser focused on the needs for the next generation of consumers.
Simply put, consumers want to have a great lawn they can enjoy with their family and pets, and that’s what we’re going give them. So what are we doing? Well, I’ll boil it down to these three major workstreams. First, a completely revamped product line. This new lineup will have new, enhanced formulas that perform better and will give consumers an incredible result.
We’re standardizing the sizes, and we’re going to roll out a fresh new packaging design as well. But here’s the best part: lower retail price points. Our supply chain is the best in the business, and their efforts have enabled us to build an entirely new pricing structure that’s going to be hard for others to match. With a new product lineup like that, it requires an entirely new media and advertising strategy, which is our second major work stream. You see, having a great lawn is easy as long as you feed on a regular basis.
Our shift in media will evolve and expand beyond just a heavy spring campaign. You’re going to start to hear and see our messages pulsing throughout the entire year, reminding consumers when it’s time to feed. We will continue with our Citizens of the Lawn campaign, highlighting the lawn enjoyment and the fact that it is safe to use our products around kids and pets. And thirdly, as we get consumers excited about the category, we’re working closely with our retail partners to build promotional programs that incentivize consumers for multiple feedings. So as you can see, we are transforming this entire business, and we’re excited about where we’re taking this category.
This approach will give consumers an incredible lawn, one that they can feel just as good about what they’re putting on it as they do playing on it. Thanks, John. The performance of our lawns business is very important to the SMG P and L and our overall financial health.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow: John and the team have made tremendous progress, and I’m really comfortable where they’re taking us. I want to go back and emphasize something for our retailers. Our partnerships are essential to both our success and their success. While we will expand our channels and marketing approaches, we view our retail activation programs as powerful tools in driving consumer takeaway. Retailers who leaned in with us this year took market share and grew their lawn and garden business by double digits.
Those who didn’t go all in did not see the same level of growth. It’s a winning formula, and it has to be a team effort. We’ll continue to fund future investments in retailer activations, which exceed our advertising spend, as long as the participating retailers help drive our POS. Shifting to Hawthorne. Divesting this business is transformation too.
We’ll continue to work toward a solution, and I expect to make progress on this front by the close of Q4. As I stated before, the divestiture would put us where we need to be: the consumer lawn and garden leader with consistent earnings, less share price volatility, and enhanced ability to invest in growth. In the meantime, Hawthorne continues to do the right things to move the business forward. They’ve now delivered three straight quarters of profitability. When you’re looking at what we’re doing across our business, we’re building a world class consumer goods company with financials to match.
This includes delivering greater shareholder returns and achieving these three high level targets we’ve established to start the year: Annual sustained U. S. Consumer sales growth of at least 3%, a gross margin rate of 35% or higher, and EBITDA gains in the mid to high single digit percentages. That leads me to fiscal twenty twenty six. Our plans are coming together, and as usual, we’ll tell you more about that in our Q4 call.
It is our intent to take pricing next year, and these discussions are happening now with our retailers. We’ve held the line on pricing the past few years while our costs, like everyone else’s, have risen. Pricing helps us drive the business and is not purely about making more money. It will give us more resources to invest in innovation and activation too. I’ll close with this.
We’re doing exactly what we said we would do. We’ve improved our financials and strengthened our balance sheet. We’re investing in our superpowers and the fundamentals that make our consumer franchise unique. And we’re making all the right moves that will result in a premium valuation of our equity. I appreciate the work of our leadership team and our associates and the support and guidance of our Board of Directors.
I also want to thank our banks and our retailers for their partnership. As always, I appreciate our shareholders for being part of our company. Thank you.
Mark Shiwer, Chief Financial Officer and Chief Accounting Officer, ScottsMurgleGrow: Thank you, Jim, and hello, everyone. We delivered a strong quarter, continuing the momentum we’ve built through the year. Jim discussed the substantial progress we’ve made on the financial metrics that are foundational to our fiscal twenty twenty five plan. When you look at our performance, we are well positioned to deliver on the fiscal twenty twenty five guidance for U. S.
Consumer sales, gross margin, EBITDA, EPS, free cash flow, and leverage. We have momentum, and you can expect us to drive continued improvements in our financial performance through fiscal year end and well into the future as we increase confidence in our growth plans. With this background, I’ll review the financial details. The overarching story is the power and health of our U. S.
Consumer business. For the quarter, U. S. Consumer net sales were $1,030,000,000 versus $1,020,000,000 last year, an increase of 1%. When you exclude the non reoccurring AeroGarden and bulk raw material sales from fiscal twenty twenty four, U.
S. Consumer sales increased 2% over the prior year quarter. Year to date, through our third quarter, U. S. Consumer net sales were 2,680,000,000 down 1% versus $2,700,000,000 in the corresponding period last year.
However, when you exclude the nonrecurring sales I just mentioned, U. S. Consumer sales increased 1% over prior year. These gains were driven by organic volume growth along with continued strong performance of new products such as the expanded Miracle Gro Organics line that were initially listed in fiscal twenty twenty four. At the start of the year, Jim outlined his priorities for our business.
That included driving sustained average annual sales growth of 3%. When looking at our combined sales growth over fiscal twenty twenty four and 2025 for U. S. Consumer, we are on pace to deliver on this target. U.
S. Consumer sales for both the quarter and the year are tracking to the guidance we provided for fiscal twenty twenty five, which is low single digit increase excluding the nonrecurring AeroGarden and bulk raw material sales from fiscal twenty twenty four. From a trend perspective, I want to call out a shift this year. Many retailers have modified their replenishment activities to align more closely with the POS sales curve as they balance their inventories not just in lawn and garden, but across multiple categories. Our supply chain and sales teams are working closely with retailers to navigate this adjusted approach and ensure we are positioned to capture all sell through opportunities through the fall season.
This said, as we prepare to close July, our order book is strong, giving us confidence in steady retailer replenishment as we load in for the fall season. Now, let’s look at Hawthorne and our total company net sales. For the quarter, Hawthorne net sales were $31,000,000 down from $68,000,000 in the prior year, but roughly flat to last quarter. Year to date, through Q3, Hawthorne net sales were $116,000,000 versus $214,000,000 a year ago. The decline is a result of the continued hydroponic market softness, combined with the expected impact of our exit from third party distribution last year.
It’s worth noting that Hawthorne continues to be positive EBITDA levels for the past three quarters and year to date has earned around $6,000,000 in adjusted EBITDA. Total company net sales for the third quarter were $1,190,000,000 down 1% versus $1,200,000,000 a year ago. Year to date, total net sales were $3,030,000,000 versus $3,140,000,000 a decline of 3.6%. The decline is attributable to the lower Hawthorne sales, combined with the nonrecurring AeroGarden and bulk raw material sales for fiscal twenty twenty four. Getting back to The U.
S. Consumer business, POS is strong, and in the third quarter, POS units exceeded prior year by 6%. Year to date, POS units were up 8%. Excluding mulch, POS units increased 10% in the third quarter and 8% through the first nine months of our fiscal year. E commerce sales are a good story as well.
Year to date, POS through online and retailer ecom sites are up 24% versus prior year, a reflection of our proactive efforts to drive more business through these channels. E commerce sales now reflect approximately 10% of our total POS dollars, with plenty of room to grow in the future. As for specific categories, a 1% POS unit gain year to date in branded lawn fertilizers reversed a multi year downward trend. Other POS unit bright spots include grass seed up 16%, soils up 12%, mulch up 8%, and controls up 3%, all year to date. Within the controls category, selective and nonselective weed control products were down versus the same period last year due to cooler and wetter weather extending into the spring and early summer, along with competitive pressures.
This trend has reversed, as heat impacting much of the country is now contributing to elevated weed and insect pressure. As a result, beginning in late June and continuing in July, we’ve seen double digit increases in POS units for key controls products. Looking at POS dollars, they were flat in the quarter, and through the first nine months were up 1%. The difference between our POS unit and dollar growth is primarily a reflection of strong POS for our soils and mulch products, which have lower unit dollar values, combined with the increase in joint promotional activities with our retailers. These promotions, along with our continued strong investment in advertising, have played a critical role in driving increased consumer engagement in an environment of macroeconomic volatility and uncertainty.
Moving to gross margin, we delivered strong improvement for the quarter. The non GAAP adjusted gross margin rate improved nearly 300 basis points, and we are on track to achieve our target of a 30% non GAAP adjusted gross margin rate for the full fiscal year. Primary drivers of the third quarter increase are improved product mix and lower material, manufacturing, and distribution costs. The impact of tariffs on our fiscal twenty twenty five gross margin is minimal as 90% of cost of goods sold is domestically sourced, and our total cost of goods is greater than 95% locked for the current fiscal year. As you might recall, we planned for this improvement, which included 75,000,000 of U.
S. Consumer supply chain cost savings and material cost deflation this year. And our supply chain team has more than delivered on this goal, so a big shout out to the team for their outstanding execution. Looking ahead, as a reminder, our supply chain team is working hard on delivering an additional $75,000,000 of cost savings over the course of fiscal twenty twenty six and 2027 as part of our previously communicated long term commitment to gross margin recovery and reinvestments in our brands. Lastly, as we look to our fourth quarter, we will lap one time inventory write offs of $29,000,000 recorded in last year’s fiscal fourth quarter.
For the third quarter, the GAAP gross margin rate was 31.8 versus 29.5% in prior year, and the non GAAP adjusted gross margin rate was 32.1% versus 29.2%. Year to date, the GAAP gross margin rate was 33.7% versus 28 in prior year, and the non GAAP adjusted gross margin rate was 34.3% versus 30.2%. Looking down the P and L, SG and A for the quarter increased 4% from $148,000,000 to $153,000,000 and year to date SG and A increased 6% from $441,000,000 to $467,000,000 This increase was planned and is attributable to performance incentive accruals, incremental investments in our brands, and transformation related investments. We continue to expect our current year SG and A to be approximately 17% of net sales versus 16% last year. Moving to EBITDA.
In the third quarter, adjusted EBITDA improved from $237,000,000 to $256,000,000 Through the first nine months, adjusted EBITDA increased over 9%, a $56,000,000 improvement from $6.00 $7,000,000 in fiscal ’twenty four to $663,000,000 this year. This year over year gain reflects our strong gross margin improvement, partially offset by higher SG and A. As we have consistently stated, we reaffirmed our adjusted EBITDA guidance of $570,000,000 to $590,000,000 Below the line, we are outperforming on all key metrics. For the quarter and year to date, interest expense continued to fall as we lowered debt balances and benefited from more favorable interest rates. In the quarter, interest expense declined $7,000,000 And through the first nine months, expense was $102,000,000 down from $126,000,000 a 19% decline over prior year.
Leverage is also a very good story. We are more than comfortable with where we are and even more importantly, where we’re headed. We ended the quarter at 4.15 times net debt to adjusted EBITDA, a more than 1.25 turn improvement from last year’s 5.46 times. We are well below our covenant maximum of five times. We continue to deploy free cash flow to debt reduction, and our borrowings at the end of the third quarter were approximately $300,000,000 lower versus prior year, as we are on track to deliver our free cash flow guidance for fiscal twenty twenty five of around $250,000,000 Our non GAAP adjusted tax rate for the quarter and first nine months was 2927.4%, respectively.
For the full year, the tax rate is still expected to be in the 27% to 29% range. Speaking of tax policy, I do want to address favorable tax implications resulting from the recently passed One Big Beautiful Bill signed into law by President Trump. The restoration of these key TCJA provisions that include a bonus depreciation, R and D expensing, and increasing the deductible interest limitation will provide us with meaningful cash tax benefits going forward. These changes will allow us to drive further investment in our business for years to come. The third quarter GAAP net income was $149,100,000 or $2.54 per share, compared with the prior year of 132,100,000.0 or $2.28 per share.
The non GAAP adjusted net income for the quarter was $151,500,000 or $2.59 per share versus prior year of 133,800,000.0 or $2.31 per share a year ago. On a year to date basis through the third quarter, GAAP net income was $297,100,000 or $5.07 per share, compared with the prior year of $209,100,000 or $3.64 per share. Non GAAP adjusted net income year to date was $332,700,000 or $5.68 per share versus $263,500,000 or $4.58 per share a year ago. For the full year, we are on track to deliver non GAAP adjusted net income of greater than $3.5 per share. Looking ahead to our final quarter, we will continue to make progress against our financial objectives for fiscal twenty twenty five and are reaffirming our guidance across all metrics.
These include: Delivering sustainable net sales growth driving margin recovery, and strengthening our balance sheet. As Jim explained, we are in negotiations with retailers on pricing for fiscal twenty twenty six, which will be a contributor to our growth strategy for next year. We are fine tuning other elements of our growth plans aimed at enhancing our core consumer business and building greater shareholder value. At the center of these plans is the transformation initiative that Jim addressed. From an internal standpoint, we are investing in technology, AI tools, automation to drive operational and cost efficiencies.
Outward facing, we will market Scotts Miracle Gro and our leading brands in new ways to bring younger and newer consumers into our business. We have much to look forward to, and we are confident in our trajectory and excited about the opportunities ahead as we plan to finish the year strong. Thank you, and I’ll turn it over to the operator for the Q and A.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow: All right, guys. Jim Hagedorn here. I’m going to just rant a little bit, not for kind of any reason except I want to look back at the last quarterly call we had, where the shares I think went down about 15%. So we had a great result. I think I’m so proud of the company with what we’re doing and the progress we’ve made that you’re seeing today.
But it was the same in the last quarter call and there were like nonsense like headlines that came out that we pulled guidance, that we didn’t make our numbers and the stock reacted to that. The next day, it went up 15% back to where it was, about a third of our shares traded and I have not been able to get the SEC or the New York Stock Exchange to show any interest in compliance against who’s behind that. And I don’t think it’s orderly and I don’t think it’s right for the New York Stock Exchange or the US public markets to sort of allow that kind of stuff. I’m really talking to Cleveland Research here, where I view Eric as one of the best analysts traditionally in our space. But if I look at sort of what he’s saying about private label, we are not losing share.
As long as I’ve been the CEO guys, we have been reducing the share of private label and gaining share in our marketplace. And so this sort of nonsense about private label, I think there is a retailer out there that is playing with private label. I’m not gonna name them mostly because they’re friends of mine, but I can tell you it doesn’t work. The news about being sort of my age and having been in this industry as long as I’ve kind of seen it all, and look, it’s a tough time out there with Amazon and non traditional marketplaces and looking where there’s gonna be growth. I think our biggest retailer has and most of almost all of our retailers have gotten behind our programs.
Part of what you see when you look at our numbers is lower dollar unit increases, much more substantial increases in our unit volume. That’s a result of effectively taking price down by taking money with retailers and putting it into, you know, what we’re calling activation dollars. And it’s worked and we’ve taken share. To have gains we had last year, to have the market share gains of 200 basis points this year, it’s just kind of the most amazing time since I’ve been running this business as far as taking share. And we’re not losing to private label and a strategy that says I’m gonna rely more on private label.
It is not gonna work and it’s not gonna work for that retailer and it didn’t work and they lost share. Inventory. Inventories are down at retail. They’re not hurting us. We’re gonna make our numbers and it’s a really nice tailwind for us next year coming into the season then.
So there is not any kind of disruptive inventory motion here. Pricing, we are going to get pricing. There’s probably a little room for Nate to play on pricing in his economics for next year, but pricing is important and we’re taking it and it’s what we need to do to get our margins up. But if you look at the increase in margin rate, I mean this year, I don’t know, it’s north of three, probably south of 4% gain in our gross margin this year. So we are making progress against all the things, leverage down by one and a quarter turns.
I’m just really happy with the business And when I look at some of the headlines out there, I just kind of wonder, like, what it’s about. Nate, anything you want to add on this?
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: Yeah, I mean, I’ll just echo Jim. I think it certainly is frustrating. I’m really pleased with our performance and more importantly, I’m pleased with the partnership we’ve got with our retailers. Think given the macroeconomic backdrop of the last two years to see both the lawn and garden category grow as well as our share gains, I think it says a lot. And I think for me, the last two quarters have been a success story.
And I think from an investor standpoint, we’ll continue to build on that and deliver just like Mark said in his prepared remarks. So from my perspective, I think we’ve got momentum behind us. And I think we’ve got retail partners that are leaning in. To Jim’s point, we all recognize e commerce is an important part of the business. By the way, the biggest growth we saw this last quarter has been with our biggest retail partners.
And I’ll speak personally, I had mulch delivered by pallet through one of our retail partners. It was cheaper and faster to get it than it was in bulk. And I think once we get that message out there with consumers and maybe even some of the small to medium sized professional outfits, there is real opportunity for us. So, again, we talk about household penetration, lawns, it’s low. We’ve got a lot of organic growth, not only for us as a company, but in the industry.
And I’m really bullish on where we’re So again, it’s frustrating to see those headlines when we know we’ve got opportunities and given where we are macro economically to have delivered the performance we’ve been delivering. All right, Victor, we’ll turn it over to you to run the Q and A please.
Conference Operator: Thank you. At this time, we’ll conduct a question and answer session. To ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please limit yourself to one question and one follow-up in the interest of time.
Please standby while we compile the Q and A roster. One moment for our first question. Our first question will come from the line of Eric Beauchard from Cleveland Research Company. Your line is open.
Eric Beauchard, Analyst, Cleveland Research Company: Good morning. Thanks. Two questions. First of all, I’m curious on price and price mix in ’twenty five, how that has performed relative to your expectations and what the strategy is for ’26 and the expectations in ’26?
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: So, hey, Eric, this is Nate. Yeah, listen for ’25, like we’ve said previously, we took net, call it just under a percent and a half pricing. We invested almost all of that back into the business mostly through activation with retail partners. So I think for ’26, as Jim said, we’re still looking to go after pricing just because we have commodities and other things that we need to take into account. It’s a little early for me to say our strategy and how we’ll reinvest those dollars, but we will.
I don’t know if we’ll reinvest all of them because we’re definitely looking to grow top line. But look, my view is this, I’m not going to spend any less activation with retail partners. I think at this point in the season, the only question is, who am I spending it with and what programs am I spending it on? It worked for us significantly to our benefit this past year and we’ll figure out a way to do it for next year. Mark, any thoughts?
Mark Shiwer, Chief Financial Officer and Chief Accounting Officer, ScottsMurgleGrow: Eric, this is Mark Shyware. Just as it relates to our expectations going into the year, we were expecting a difference between and dollar growth from a POS, mix being a big piece of it, and then I think I’ve said in the past about two thirds of it and one third price. Those have held in line with our expectations. And the only thing I’ll call out versus some of the remarks at the beginning, we’ve had some great innovation this past year and past two years on Miracle Gro Organics, which has helped with our volume and a lot of our great activity in unit volume growth. So from an expectation standpoint, it was in line from a sales guidance.
And then as we look to next year, we’re still in the early planning phases, but as that business like soils and mulch continue to grow and do well, there might be a continued disconnect, but we’ll see. We’ll give you guidance in Q4.
Eric Beauchard, Analyst, Cleveland Research Company: Great. And secondly, in the neighborhood of Jim’s comments, the comment about the category growth and you gaining share this year, what do you think the category growth is at retail in ’25? And what have your numbers you compare to that?
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: Yeah, so Eric, calculus using our external sources as we see the year to date market for lawn and garden has grown about five points and we’ve gained about two points of that share.
Eric Beauchard, Analyst, Cleveland Research Company: And so within that, this dollars or units? I’m sorry.
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: Dollars.
Eric Beauchard, Analyst, Cleveland Research Company: Okay. So the market up 5% and your dollars up 7% Okay. Year to Very good. That’s all I have. Thank you.
Conference Operator: Thanks. One moment for our next question. Our next question comes from the line of Jon Andersen from William Blair. Your line is open.
Eric Beauchard, Analyst, Cleveland Research Company: Good morning. Thank you for the questions. Two questions. First is, you commented about the performance of some of the customers that leaned in with you on your traffic driving strategy this year and their relative outperformance. Could you talk about how that is influencing your twenty twenty six line reviews, specifically those retailers planning to kind of re up and lean in again with you and maybe those that customers that didn’t to the same extent rethinking that given their relative underperformance?
And then the second question is on margins. Great gross margin improvement last year. Looks like you’re set up for another significant improvement this year. If you get to 30% and then you have kind of the target in the mid-30s, can you talk a little bit about your visibility into getting to mid-30s over the next couple few years and what the cadence of that might look like, 26 versus 27? Thank you.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow: All right, hi John, Hagedorn here. I’m gonna sort of take the first part on kind of programs and activation dollars. Remember, talked about this, which was coming out of kind of our shit show. We use discounting pretty heavily and as things turn around, we wanted that money back. Retailers basically said, look, man, customer count’s down, our margins are are down, we’d like to keep that money.
And we decided to put that money to work saying, you know what, when you look at a lot of our retailers, most of our retailers, they’re spending more than that pushing our products and pushing along the garden. So we basically said look, if you use that money for our benefit and your benefit together, we’ll do that. You know, I’m trying to in my head figure out kind of what that’s worth, but I’m gonna say that’s probably worth at least 5%. And you know, Nate made a comment which is we’re not reducing our spend, we’re not looking to bring that back, we can make our margin numbers without that and the work that’s happening in the supply chain and on the sort of operating units is really really good at that. But what he did say is we’re gonna spend more doing that with people who are using that money.
And people who are not gonna be part of that program are not gonna have access to that money. And I think that for people who are listening, you know who you are. And I don’t think we wanna go down that path. So we’re looking to spend that money, it definitely works. And we saw this year, and we saw it last year.
So, the question is on the fact that this program dollars.
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: Yeah, and I guess I would say, John, it’s a little early for us to project. We’re in the middle of those discussions with retailers. So whether those programs look the same and each retailer takes the same approach or not is still a TBD and we’ll add more color to that next quarter. Hey, I do want to correct myself. I said I told Eric dollars, I really meant units when we talked about the market share.
So just I want to stand corrected on that.
Mark Shiwer, Chief Financial Officer and Chief Accounting Officer, ScottsMurgleGrow: John, just a follow-up. This is Mark Shy. We’re just following up on your comment on gross margin in the phasing. So what you saw year to date has been outstanding performance by our supply chain team and the organization broadly. So we’ve been able to over deliver a year to date on our gross margin, including those $75,000,000 of savings.
We’ve over performed year to date, we’ve realized those and we’ve got good line of sight for the balance of this year. As I look to next year in ’26 and ’27, the team’s already been doing a lot of planning around this and the walk generally from 30 to 35 is gonna include about a point, I call it about a point of 1% benefit, gross margin benefit or 100 basis points from supply chain savings, and then about 100 basis points from net pricing, net of any kind of commodity inflation. So those are kind of the key step ups as we go from here and I would say that the team on the sales side is working hard on those pricing and programs and we’ll provide you more color at year end. I can definitely tell you as well, the supply chain team, we have a long history and track record of delivering at least 1% of cost outs in our business. And I’ve been already seeing the laddering up of projects.
The team is doing a great job. It will be a little bit phased, like I said, 1%, 1% is generally the nerdy economy, it’s phased, but the team’s got to execute on CapEx projects. We’ve a of great CapEx projects we’re working on that we spoke in our prepared remarks around automation activities that are going to deliver a lot of those future savings. So it will be kind of a staggered measured approach. And I would
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: just add innovation. I think John Sass talked about it in the introductory remarks. As we really go to full launch of the new fertilizer program in ’27, that innovation will bring margin accretion with it as well.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow: Yep. Look, I also think that there’s a lot of enthusiasm at retail on lawn and garden. Look at our unit volume increase over two years, that’s 17%. So I think there’s a lot of enthusiasm and I don’t want anybody to get the idea that there’s any trouble kind of in paradise. It’s a really good category, it’s growing really well, retailers are highly enthusiastic, and I’m not really hearing any sort of pull back from their sort of outlook, which is positive for lawn and garden.
Yep.
Conference Operator: Alright, thank you. One moment for our next question. And our next question will come from the line of Chris Carey from Wells Fargo Securities. Your line is open.
Chris Carey, Analyst, Wells Fargo Securities: Hey, guys. Hey. Hey, Chris. Just regarding a, like, more of a mixed question, and this is really more strategic longer term. Can you just give maybe a state of the union on how you feel about the lawns business, delivery versus expectations this year?
And really how it informs your thought process over the next one to two years as you look to perhaps improve the mix between some of the growing media and mulch businesses relative to lawns over the medium term horizon?
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow: I’ll start because I am really pleased with where the lawns business is. They had originally come in, I think with like a minus five, I think with the number
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: of Yeah, first look was minus five.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow: This was one of those meetings where I said just get out of my office right now and rethink your
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: words here carefully.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow: And John and his team, with a lot of support from Nate, have done really well. We called the Midwest numbers out because of the two big regions in the Northeast and Midwest. The Midwest had the most normal weather. So I don’t know what those numbers were, they were like plus 15 or something like that, which I think is way above, if you look at the Northeast was just really late, and Texas really never came to fire and they still held the line, they were still positive. They had a huge increase in crabgrass control products, so that halts business.
That is no joke to be up, I think it was ’25, I’m just looking at people, they’re giving me the thumbs up. To be up 25%, it doesn’t just do good for multi bag. There’s always a lot of reserves when we do it because a lot of retailers have return rights on that product because it’s kind of a short season. So basically, we sold everything that was in the street. And so I’m gonna say that, you know, you might look and say, plus one or whatever we said across the line and say, well, you know, that doesn’t look that great compared to where they showed up, compared to the sort of regional weather effects, and sort of picking and saying, did it work?
And it’s advertising that it’s really early days with this multi step. But, there’s a lot of research that our folks have done on what consumers take away from the new advertising as far as safety of their kids and pets, and their willingness to use and do multi bag and understand the need for multi bag. I think it’s really going well. And so, so much of what we’re talking about is go forward. John and the group, this transformation stuff that’s happening here, I don’t know, I don’t think I’m being irresponsible, but my encouragement to Nate is you can burn this whole place down, I don’t care.
We’ll do what we have to do to make this business the sort of consumer powerhouse that it needs to be. And one of those things, where I don’t know what that facility is worth across the street, long fertile, but say it’s a billion dollars, that better be a competitive advantage. And one of the things I told Nate and John is if Marysville can’t produce fertilizer at a price that you can sort of handle with how you wanna go to market, close it down, I don’t care. And I think that was a revelation for the guys across the street in the supply chain. And the work that the business team and the supply chain did, When John says, you have no idea how competitive we’re gonna be going forward on fertilizer pricing, and without affecting our margins.
And so what I’m telling you is we have made huge progress in how we think about it. And I think even the trajectory of that business just in this one year, it’s hidden a little bit by the regionality of the Northeast and sort of Texas. But if you look particularly at like the Midwest, which is one of our gigantor regions that had more normal weather, the results were astounding. And so I’m really pleased. And I think from a competitive, this issue of lethality, maybe going a little bit back to sort of private label, John can be incredibly lethal even in private label.
I mean, I would not wanna be like, they’ve taken that plant and turned it into a huge competitive advantage, and you’re gonna see that rolling out really next year and the year after that. It’s gonna be really fun to watch. And then the the other brand teams, you know, this is a whole new crew. We got a board meeting coming up, I guess, starting tomorrow for two days up in Vermont. And this is a very important Scott’s two point zero discussion that Nate is really gonna be leading with the board.
And his brand teams are insanely on fire. They have a high degree of aggression and appetite. On the control side, David is just he’s got a big list of stuff and Nate and I are all about it, where he’s going, and it’s gonna be good. Sadie, who runs our guardians business with Martha Stewart, are just Sadie not only has the biggest business in the company, but you just look at what’s happening with sort of her soils business. It’s some amazing stuff to watch, and Martha’s a part of that, and Sadie’s attack on the business is a part of it.
And so, this is not commodity soil work. This is premium branded high margin soil stuff. And so the gardens business is in really good shape. And so what do I think? I think all the brand teams are all about it.
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: Yeah, I’ll just listen, Chris, I’ll just add just back to your question on lawns. You’re focused on the right thing. And we talked about this at the last earnings call. We have so much potential. Remember, our household penetration there is about 11%, 12%.
So if you just look at a combination of focusing on frequency, which John talked about, and household penetration increase, there’s a lot of organic growth that’s possible there. So what Jim talked about in his opening remarks, addressing the consumer in a different way, making sure we have solutions, whether they’re time constrained or budget constrained, you’ll start to see that. Now, the challenges, we have a transition that’ll be coming in twenty six-twenty seven with those products. So, we’ve got to work with retailers on that. But you get through that transition, we’re going to be competitive to a point where I don’t think there’ll be a distant second.
Mark Shiwer, Chief Financial Officer and Chief Accounting Officer, ScottsMurgleGrow: And Chris, this is Mark Schuyler, just on some of the modeling related to mix. So this fiscal year, year to date, we actually had positive results from mix, not only because Hawthorne mix is obviously lower, but we saw some good momentum and movement within our U. S. Consumer business. The quality of the earnings related to the mix of our products has really improved.
And as I look out over the next couple of years, the innovation that’s coming and the activities we’re doing in the lawns category, I view them to be margin accretive, but I’m not even factoring them into my as I consider my walk to 35 or mid-30s, I’m more focused on cost savings, things we can control like that and then the pricing activities. But mix definitely as we see the lawns business continue to grow and perform and get those higher frequencies, that is a very high margin business that should help us in the future.
Chris Carey, Analyst, Wells Fargo Securities: Okay, all right. I’m gonna leave it there. Thanks so much. Thanks, Chris.
Conference Operator: Thank you. One moment for our next question. Our next question will come from the line of Joe Altobello from Raymond James. Your line is open.
Martin, Analyst, Raymond James: Hey, good morning. This is Martin on for Joe. Earlier you had mentioned that many of the retailers have shifted their replenishment to match the POS curve. Would you mind giving a little bit more details as to what’s going on there and sort of what’s the shape of the retail inventories?
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: Sure. Look, think if you go back to pandemic in the peak when all of our patterns got completely sideways, We were at peak sort of sixtyforty in terms of first half, second half load in. Prior to the pandemic, we were roughly fiftyfifty plus or minus a point, I think year over year. So what we’re seeing now is this natural trend back towards the fiftyfifty. By the way, we’re supportive of it.
I don’t worry too much about retailer ending inventories. We definitely lean in with retailers as they want to make those adjustments. By the way, from my point of view, it helps our supply chain. We’re probably the only supply chain that can deliver almost just in time. So from my perspective, it actually helps and I can level load production more.
And I think, you know, each retailer is in a different place. A couple of our retailers this year have been more aggressive on that. And I think that’s good and I suspect we’ll see more of that as we sort of get back to call it fifty-fifty. I don’t know, Mark, you want to
Mark Shiwer, Chief Financial Officer and Chief Accounting Officer, ScottsMurgleGrow: And then just to follow-up, Martin, Mark Schuyver again. As far as the going into the year, retailer inventories, we did expect to have an impact from a retailer activity just being down a little bit as far as inventories go. So we had planned that into our sales guide. So that has kind of has shown up as we’ve navigated. And then as I look to next year, as Nate spoke, as that first half, second half dynamic changes, you would expect probably some shifting mostly between Q2 and Q3, less to do about like a year end long term.
It’s more of a shifting between Q2 and into Q3.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow: But I think what we’re seeing and people were correcting me this morning as we were talking about it. I think it’s excluding commodity, retail inventory is about down about 10%. Is that?
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: I think down about 4%, yeah, if you take out mulch. So I think they’re healthy. It depends on the retailer. But I think shifting quarter to quarter doesn’t bother me. What I really look at is the underlying consumer health.
And if you just look at those POS gains last year, where we are this year, 8% year to date, the consumer is healthy. So adjusting inventory buys to be closer to the curve, I think it’s just it’s where we’re headed as an industry and we’re totally fine with that.
Martin, Analyst, Raymond James: Great, thank you. That’s all for me.
Conference Operator: One moment for our next question. Our next question will come from the line of Peter Grom from UBS. Your line is open.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow0: Thanks, operator. Good morning, guys. I just want to ask a follow-up question on gross margin. It’s a So sort of just 100 basis points of cost savings, 100 basis points in price, that’s for each year and for both drivers. So I guess all else equal, that bridge would assume kind of going from 30% in fiscal twenty five to 32% in fiscal twenty six, and then building from there.
And if something happens with Hawthorne, you could see another, call it 100 basis point tailwind. Is that the right way to think about it? I just wanted to clarify that.
Mark Shiwer, Chief Financial Officer and Chief Accounting Officer, ScottsMurgleGrow: Yes. So that would be how the simple math works, Peter. I would just tell you year to date, we’re over performing from a supply chain perspective. So I feel confident when I say the 30, could we be above that? Absolutely.
And so that’s as we kind of keep working on these additional supply chain savings projects and work through our pricing activities, those will also be a little bit of a tailwind as we navigate up to 35.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow0: Okay, and then
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow: We’ll be By the way, we should be pretty close to that next year, I think.
Mark Shiwer, Chief Financial Officer and Chief Accounting Officer, ScottsMurgleGrow: Yeah, it’ll be not not 35, but yeah, we’ll definitely make progress and be we’ll be on a good trajectory. Absolutely.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow0: Okay. That’s really helpful. And I guess just to to the prior question, right, I think in your response to Chris’s question, you kind of mentioned that you weren’t really including benefits from mix and innovation in this bridge. So are there any guardrails you can provide in terms of what that benefit could look like? And is this something that actually could start to show its teeth in kind of the P and L next year or is that kind of more of a multi year process?
Mark Shiwer, Chief Financial Officer and Chief Accounting Officer, ScottsMurgleGrow: Peter, this is Mark Shire, at least for me from a financial modeling, I would view it more as a multi year process. The team has done a great job coming out of COVID, firing up our innovation funnel again, and so we’re doing some cool things there. You know this in the retail space, as we roll those programs out and build out the advertising, it’ll be a multi year approach as we kind of navigate that.
Chris Carey, Analyst, Wells Fargo Securities: Yeah, I guess I’ll just say
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: that a different way. I think, again, we had a very cost out focus, call it three, four years ago, we’ve shifted, it takes a little bit of time to get that spun back up. But I think MGO is a great story. We’ve got new innovation. Don’t know what that means.
Oh, sorry, Miracle Gro Organics. That organics line went from nothing to $100,000,000 in two years. So it’s from our perspective been a success story. I would say we’re biased towards more innovation coming out in 2017. But here’s the difference, Peter.
And you saw it with the mosquito product that was featured on prepared remarks or the prepared video. As innovation becomes available, we’re going to introduce it through digital channels. We’re not going to wait for sort of traditional seasonal with the retailers. By the way, we’re not leaving them out of this. We’ll do it through their digital channels as well.
So, you’re going to see us turn on to more of a three sixty five. When we have something ready to go to the market, we’re going to take it to market and we’ll do it in a way where we’re targeting consumers. I think it takes a little bit of the when you think about weather in the spring and you think about people going to a garden center or a retailer on a nice sunny day, I think what some of our retailers are seeing is people on ecom, they’ll order it on a rainy day and they’ll wait till the next nice day to apply. So I do think we’ve got sort of cultural shifts that will favor us as we work with our retail partners to sort of figure out how to address consumers wherever they are, as Jim said.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow: Look, and I think one of the things we have talked about is, know, Bonnie’s done really well this year. So, you know, I think continued progress there and Hawthorne also helping out. So, you know, not being a drag.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow0: Yeah. That makes sense, Jim. I I guess one last question for me, then I’ll pass it on. Just, Jim, taking all the comments you’ve made or just around the top line, the category and the retail activation, the innovation, clearly just a lot of momentum, a lot of enthusiasm. And I know your comment in the prepared remarks around the long term algorithm for certain components of the multi year target.
But as you look out to next year, is there any sort of reason why The US consumer business wouldn’t see that 3% level of growth that you kind of outlined previously? Thanks.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow: The answer is no. Here’s our issue. I’m looking in, this has been up probably six months on my big whiteboard in my office, which is kind of what I’m trying to get everybody head around is 2% unit volume, sort of 1% pricing. I’m talking not next year, I’m talking kind of long term, 1% cost out. And I think those are safe numbers.
The issue is if all the stuff we’re doing, if I was any of the people running businesses, those are embarrassingly low numbers based on I think what we know we can do. So I think the challenge is if you look at just marketing money that Nate wants, that was probably a 150 this year or something like that, which is a big increase from last year. I think when Nate’s gonna show up tomorrow and Friday is say that I want 300. And so the question is, and I know this is a lot of pressure on Mark, is he wants to be safe. Okay?
And I totally get it. So but it the kind of square corner we’re gonna run into where we don’t wanna tell you guys numbers that we can’t make, I think that’s a bad day. But we think we can do more. But Nate wants a lot more investment in the business, and I think the brand teams I think need that money, they want that money. They can put that money to use.
And that’s a little bit the sort of challenge in the budgeting for multi year budgeting that we’re kinda running into is, if we use a low enough number, it’s not gonna justify the investment that Nate’s gonna wanna make in his business. And it’s not just in sort of marketing. I think it’s innovation. There’s a lot of places where Baxter wants to put money. And I know Mark and I want to give it to him.
We’re providing that guardrail that you guys were talking about as far as limiting top line growth to a number that we believe is achievable kind of all day long. And that’s the difference is, I think that the natural growth rate of this business should be higher than sort of 2% unit volume growth. And we’ve seen that. So we just have to figure out how to budget through it, because I think what’s important is for Nate to make numbers that are higher, he needs the investment that’s higher, we wanna give it to him. But Mark and I are trying to be safe on of I what we tell you
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: think this year stands as a proof point. We made significant incremental investments in the brands and the business and we’re on track to deliver for guidance.
Mark Shiwer, Chief Financial Officer and Chief Accounting Officer, ScottsMurgleGrow: And Peter again, Mark Shiwer. So as our margins continue to improve and what you saw this year, we’ll continue to invest in the business from that standpoint and those would be sales, volume driving activities, whether it be incremental advertising or investments from an IT perspective, e comm, things like that. So kind of becomes circular, but we’re making great progress on the gross margin activities and I think those will help fuel growth and we’ll give you a sales guidance Q4.
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: Yeah, we’ll do it in a measured and responsible way.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow0: Makes a lot of sense.
Jim Hagedorn, Chairman and CEO, ScottsMurgleGrow: I don’t know, man, I don’t know. I think that I personally very much believe in where Nate and his crew are going. I want to invest hard behind it, and I also understand the need to sort of safety in our outlooks with the street that over promising and under delivering where we still produce a great number, but people say, well, it’s less than you said. And we do have to figure it out. We were going through just headcount here, because we’re getting ready for a board meeting, we’re talking about this issue of transformation or call it.
This company from a headcount point of view is a lot lower. I don’t know what our cuts have been. I think we said just 400,000,000 in cuts, 100,000,000 investment, that’s what we said kind of last year. I think Nate’s pulled out probably another $100,000,000 if not more.
Nate Baxter, President and Chief Operating Officer, ScottsMurgleGrow: But I would distinguish just one important point, which is springboard were cuts, but what we’ve done call it over the last twelve to eighteen months has been just strategic transformation. Just eliminating workflows that don’t need to be eliminated, automating things. Yes, there’s a net result in terms of costs. But from my perspective, the long term health of the business, it’s about efficiency and it’s about doing more with less and leveraging the technology around us. Mean, that’s the real story there.
Conference Operator: All right, thank you. One moment for our next question. Our next question will come from the line of Andres Padilla from Jefferies. Your line is open. Andres, your line might be on mute.
Well, that’s easy then. Alright. And that actually concludes our question and answer session for today. Thank you for your participation in today’s conference. This does conclude the program.
You may now disconnect. Everyone, have a great day.
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