Adam JacksonThe Scotts Miracle-Gro Company (NYSE: SMG) announced its second quarter results ending March 30, 2024, showing a slight rise in net sales over the year as the lawn and garden giant’s hydroponics segment continues to slump.
“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,” chairman and CEO Jim Hagedorn said in a statement.
Total company sales during the quarter remained flat at $1.53 billion versus the previous year (though still beat expectations by $40 million, according to Seeking Alpha). The U.S. Consumer segment showed positive growth, with a 2% increase in net sales reaching $1.38 billion.
“With outstanding retail partnerships and execution by our team, the U.S. Consumer business delivered a strong second quarter that tied the record high for net sales set two years ago,” said Matt Garth, chief financial and administrative officer.
However, the Hawthorne segment saw a 28% decline in sales, summing up to $66.4 million. The company cited the discontinuation of its third-party distributed brands business, as well as general ongoing headwinds on the indoor and hydroponic industry.
Management has said that it’s been actively trying to improve margins and cash flow. The hydroponics arm over the past year shifted its focus to selling consumable products like nutrients and growing media, which require less capital investment versus durable products like sophisticated lighting systems.
To mitigate some of the sting, Hawthorne announced a partnership with BFG Supply to adjust its go-to-market approach to prioritize higher-margin signature brands over distributed brands. The company also recorded $77 million in pre-tax restructuring charges, mainly related to further contraction of the Hawthorne supply chain network.
The company reaffirmed its fiscal 2024 guidance and reiterated its commitment to beef its balance sheet by generating $575 million in adjusted EBITDA and $560 million in free cash flow.
However, it also expects to see a 25% to 30% in net sales for Hawthorne, according to a company earnings presentation.
Hawthorne has been a meaningful contributor to Scotts’ debt paydown, generating over $120 million in positive cash flow in the past two years, Hagedorn told investors on a February call. Management at the time hinted at potential deals with cannabis companies in the works that apparently couldn’t be disclosed.
