Scotts Miracle-Gro Raises Full-Year Outlook Despite Sales Slowdown
Scotts Miracle-Gro lifted its full-year adjusted profit guidance even as third-quarter net sales growth slowed to 1% and gross margins slipped on higher freight and commodity costs.
Scotts Miracle-Gro (SMG) raised its full-year non-GAAP adjusted earnings guidance to a range of $4.30 to $4.45 a share, up from $4.15 to $4.35, even as its latest quarter showed signs of slowing momentum. The lawn-and-garden products maker had held that prior range steady through both the first and second quarters of fiscal 2026 before lifting it in the third-quarter release.
The upgraded outlook arrived alongside a quarter that looked weaker on several fronts than the one before it. Third-quarter net sales rose just 1% year-over-year to $1.17 billion, a marked deceleration from the second quarter's 5% growth to $1.46 billion. Gross margin also reversed course: GAAP and adjusted gross margin rates fell 90 basis points and 100 basis points, respectively, to 31.2% and 31.3%, as the company absorbed higher freight and commodity costs tied to the Iran conflict. That followed second-quarter margin expansion of more than 200 basis points and a smaller 90-basis-point improvement in the first quarter.
Profitability told a similarly mixed story. GAAP net income from continuing operations fell 34% year-over-year to $1.75 a diluted share, a sharp reversal from the second quarter's 18% GAAP EPS growth. The decline traced largely to $48.2 million in impairment, restructuring and other charges, up from just $0.9 million a year earlier, which drove a 27% drop in GAAP pretax income from continuing operations to $155.2 million from $214.0 million. Non-GAAP adjusted diluted EPS from continuing operations still rose 8% to $2.82, though that too decelerated from the second quarter's 13% growth, and adjusted EBITDA declined 3% to $246.3 million after a 9% gain in the prior quarter.
Within the business, the U.S. Consumer segment was roughly flat, with net sales up less than 1% to $1,032.9 million and segment profit down 2% to $229.8 million. The smaller Other segment, largely Canada, outperformed, with net sales up 8% and segment profit up 10%, pointing to a mix shift toward the non-U.S. business.
The quarter closed out a period of significant portfolio and leadership change. Scotts completed the divestiture of Hawthorne, its cannabis cultivation supply business, to Vireo Growth on April 8, 2026, after announcing the deal in January. Results for all periods have been reclassified with Hawthorne as discontinued operations, and the segment is no longer reported separately. The company had already restated prior-year and multiple fiscal 2026 quarterly results in its February 20 release to reflect that reclassification, cutting previously reported fiscal 2025 net sales to $3,255.8 million from $3,413.1 million.
Scotts disclosed a leadership transition for the first time in the third-quarter release: Nate Baxter succeeded Jim Hagedorn as chief executive on June 29, 2026, ending Hagedorn's roughly 40-year tenure with the company, including 25 years as CEO. The Hagedorn Partnership publicly expressed support for Baxter's appointment.
On the balance sheet, the company's net leverage ratio improved to 3.78 times, down 0.37 turns from a year earlier, though the pace of deleveraging slowed from a 0.70-turn improvement in the second quarter and a 0.49-turn improvement in the first. Scotts also lowered its full-year tax rate guidance for continuing operations to 27% to 28%, from 29% in the prior year, citing higher earnings and discrete tax items.
The company's $500 million share repurchase program, announced in January, was not addressed with any update in either the second- or third-quarter releases beyond its initial announcement; repurchases are still expected to begin in late 2026.