SMG - Earnings call 4 2023 | The Scotts Miracle-Gro Company

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Operator

Good morning, and welcome to the Q4 2023 Scotts Miracle-Gro Company Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to turn the conference over to Aimee DeLuca, Head of Investor Relations for Scotts Miracle-Gro. Please go ahead.

Aimee DeLuca

Good morning. Group are Administrative and Operating Officer, Baxter; Chris morning Chief Jim Officer; this and and Hawthorne. Financial Matt Hagedorn, me Chairman, CEO, President Hagedorn; Nate With of President Garth; Chief and will prepared our with discussion Jim some Matt remarks. begin open then to call will your operator the The questions.

Commission that Form Securities what As today. we be aware Please statements, details XX-K could the results for refer please forward-looking will actual full Exchange impact differ risk our filed the share and with that we factors be our to range making our of materially from results. of could

For at are invited (XXX)-XXX-XXXX further quickly up to directly work call, will as me set to call discussion after and some the e-mail possible. you time or as

today's of is archived on that An published be call the will website recorded. version at our investor.scotts.com. being Lastly, please call note

I'll over let's the that, Jim With turn going. Jim? to Hagedorn get begin. call to

James Hagedorn

you're businesses. 'XX taken we morning, many how our going and factors there everyone. hear Aimee. are to continue that I'll to the Thanks, and in remind move forward everyone Hawthorne to situation current Today, impacting Good financial 'XX. to Consumer our positively fiscal actions led out closed we've

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This our amount put and Our mission operations. actions. choices incredible in tough people was fiscal required fast an 'XX business. stress the It on stabilize of to our and

debt $XXX another and $XXX flow and $XXX north expenses we We from million. million cash savings. in We made in $XXX million As legitimate by a cut down cost and generated work, ago targeted result a paid year have million progress. of improvement this of measurable

We in more and than challenging thanks environment. and the greater we banks, have by to financial a inventory category took And million. share our outperformed $XXX flexibility. lawn reduced We've garden

in are retail 'XX, fiscal enter good inventories shape. we As

Our than been tested and relationships stronger have with are ever. our retailers

a what All state of to this running of contributes to business. we as our a more normal return see

Our consumers times of highs, are strength the been progress whose these in outstanding. brands, trust all-time among and and can be whose our resilience tied has awareness people to at our

at the more As Hawthorne, at 'XX in it than to of million stated profitability. flow I breakeven rate end goal stage the It that in profitability $XXX start of for in restore 'XX. for my reached generated QX, the free 'XX, to run setting fiscal cash was

shareholder 'XX value. next-generation within the will 'XX. in than and talent, enhance momentum of our August. our top the we with fresh He our deliver outlook we share bring who for fiscal how for and levels fiscal Together, achievements, explain On results we're perspectives. guidance provided energy senior performance better leaders upgraded building also the we and executive improve or will Matt to

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the the out. thought risks fiscal job consumer developed achieving of plan deliver one, global aggressive $X of to in gross The well improving control, four, by plan flow ratio that an in the margin end into the an team million has for billion Xs 'XX; more year-end. by to getting three, this two, are plan state of Elements is cash things The outside $XXX or leverage by fiscal the but paying operating and down events. X-year our debt the of million of and of mostly additional our EBITDA; the free finishing 'XX include: by $XXX close 'XX;

up retailers believe in holistically, most numbers when We will But show stable and healthy. garden year. they past to and core look consumers core is consumer least the did our at you the our level at consumer and this lawn this

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more I'll address first leaders will charged leadership more work for on and and and the talk this of real empower business and years place and other. Baxter take Garth. I to put delivering are I me opportunities what Nate is executives in plan. partners. want each detail provide smart, and with Board our They're come with Matt Matt to future new team They starts team. that and in well to and I business Nate this responsibility. guide with are team executives need rising to operating shortly. aggressive It who create the management about for the entirely The experienced the an as

between could side, changes extended but Nate leadership QX, all the Mike leave At of CFO is Matt more it and we partners. move to administrative have expanded balanced. clear the Denise The Shifting retirements clarity day-to-day. to Lukemire as to Matt is and to for both Matt the them step surround to the and role. has the close functions the quickly accelerate who to Matt responsible of 'XX, almost talent positions Nate up. run him equal set Nate operations planned and responsibilities We to the I made power and became for decision needed business with Nate Stump, and beyond in and responsibility up

and have Resources We a of Counsel. Human new new General a Head

set and with [ led and is roles. provide and Nazadi Emily new Chief creative report marketing, creative partner a Syed agency They will IT with for responsible Nate. direction VPs compelling Marketing motivates Jody to have infrastructure VP, led teams Wahl initiatives. and the also by new and Ashley overseeing restructured. been digital that ] consumers. world-class brand IT and is Ashley the In to And Lee. Officer a our inspires Bachmann by IT marketing Officer Jodi by The eliminating We've Chief Information Marketing

media a media world-class our for Mediahub, also buying partner They'll deploy effectively based to with dollars our priorities. on work longtime

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said, savings. indications consumers. earners. more isn't be have at Their within They 'XX. base. time debt 'XX the entire in are I spend than personal the who retailers broader homeowners our chase our is they consumer As did to see higher is the they core they higher-than-average to healthiest tend and consumer existing home base and in new time will a of We And this low,

and biggest for As opportunity foot more to is lawn on their retailers, say drive traffic. they're They garden foot traffic. focusing

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As inventories in good shape. I retailer said, are

to load Last we took our strong. changes be retailer to year, quarter-to-quarter year. to were there a sales the approach expect We short-term patterns as

patterns. follow more the For pre-COVID will load fiscal historical 'XX,

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X% [indiscernible] biggest We're X% building for plus plus Home is line, and XX.X%; Miracle-Gro Mix and XX%, up Turf with Controls XX%, Our Potting X%. momentum XX.X%, Gardens is bonus has are campaign S yielded X%, fall The respectively. is Roundup the Defense up units and in ahead. Ortho at up up X year Builder up

shareholders a company. solutions can't more a will as for an can. soon create grow. in but vertically update we that as Hawthorne, should to cannabis of benefit at leading to we've As on I we business made We're for share discussions provide active opportunities time, progress this create potential integrated and range that

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we're know our a For feels to and worse grind, like used felt because it associates, winning. I it

of lot. This our we've will All engaged a and and of turn we focused us year all stay to the the the accomplished stabilized corner. be on To execution. need stakeholders, business

experience the on goal of million. Our over our in in will repositioned cost track debt. end outs billion a frame, cash free of over $X year we We've time flow in that exceed by will And $XXX X-year of period. enhanced new us By most creating for Board. will Thank year, it of the down pay same $XXX our million the our meeting power. We're leadership tailwind and and our challenges of a brought We're I'll decade. to you. team diverse over brand faces to turn this end we significantly Matt. with benefit solve the our will next that

Matthew Garth

and Jim, Thank you, hello, everyone.

outcome year our of fiscal margin and to noted, is while change flexibility. within XXXX significant operating driving and immediate which and Jim innovations, every associate maintaining Miracle-Gro. increased financial strategy aligned The Scotts priorities, As market-defining positions is generated recovery

in Now our for let's 'XX. are take into performance look establishing and guidance deeper a the 'XX fiscal we

sales and guidance. top $X.XX in fiscal quarters. the year was result line ending XX% with as results. XX% quarter, consumer the sales discussed fourth year decreased previously timing line a at quarter which XX% of our in U.S. with the of between down third the Starting Total shipments the company billion, declined for

but the was nearly dollars sales driven on lower We For with by our shipment more fell POS the higher. full X% pricing and volumes margin the Total consumer by ended year nearly business. higher up loans higher X%, X% weather-sensitive year, pricing.

September are year units levels and fiscal month inventory XX [indiscernible] of That X%. and are up units currently on and The October ramp-up fast-turning about fall weather year POS our the volume and our said, the Retailer largest than ended poor in campaign healthy. entering growing of taken were year-end slightly expected down new, almost 'XX X%. listings about ended unit related POS was fall our hold majority to of the lift. At X our retail media X% ahead lower the prevented customers, has as campaigns. in inventory the inventories average down

XX% guidance. line our Hawthorne, year, with both fourth XX% with declined for in the fiscal and the in At quarter sales being

of signs in see the industry. to continue We stabilization

it However, to remains call top point inflection in an line. too early the

for the fell about ] year, [ rate with margin Moving results. XX.X% to helping gross to full the acceleration on points to savings total of company the deliver XXX basis rate SpringBoard Project better-than-expected

down you. lower production I Now XXX let improvements. of near nearly for including springboard break impact Factors and as characterize drove the of actions Pricing deliverables the change me the unfavorable, that basis term year-over-year margin points [indiscernible]. would

income the the down efficiencies actions the across Moving driven was by managed savings within year, with at creating statement. organization. Springboard SG&A aimed tightly

brands, We our sales strengthening continue maintain to pipeline. innovation and investments in force our future through our our

X% the For sales net our was year income year with with came delivering $XXX ended sales Operating X.X% or X.X%. of of 'XX line than and accelerated over at in XX% Springboard SG&A million. improvements year, the EBITDA last $XXX for guidance savings of our Adjusted fiscal fiscal million XX.X% at to guidance. lower in

operating interest higher. XXXX, and XX points $XX in SMG average and environment interest rate basis roughly point below expense increase ended XXX another has driven borrowing in we see Looking in a will increase line, rates significant year the fiscal higher million XXXX. the the which basis increased

largely As in is which so our to XX.X%, There well of the generation to in discrete quarter. that fourth drove free rate above in half the was year, full paydown the flow the occurred cash year were the our typical, fourth tax expectations. several effective weighted back our was debt rate items quarter

meant share the assets All tax were in in exclude current had used credits In jurisdictions impairment, and impacts inventory $X.XX consumer the per against restructuring result a adjusted Note, earnings, be loss which U.S. was EPS the share onetime quarter. last to year. $X.XX Full the third per period. that items fourth valuation short, certain quarter allowances from of deferred this could loss $X.XX. a $X.XX of we told, other write-down not includes versus related our nonrecurring year

cash to on moving free and balance the flow sheet. Now

'XX. improved QX. We continue and Versus improvements. million which prior free cash cash significant by end to and by $XXX of in lower million strong Inventories flow, debt further to in with $XXX a $XXX driven free flow nearly over able deliver inventories working nearly million. the in fell we With fiscal flow $XXX anticipate are cash million year, drive improvements Liquidity dividend our is decline million, we year-over-year, $X.X million, $XXX positive debt the billion over generated and of capacity lowering was year. of fiscal quarterly $XXX with maintain this other as capital primarily of by

quarter other today had closing we the the a agreement million. If accounts AR million income this replaces 'XX. closing our cash expense higher the on to dip will Additionally, year-end, in created new and and that fiscal is cash sale JPMorgan line discounted reflected program with prior of operating cost ends our a within the and be around [ been receivable facility. upsizes at that expected timing have would announced in and be $XX associated we crossed sales ] earnings The with Note in the place flow. in from $XX operations

ended reported of leverage that occurred includes of X.XXx. to for adjusted $XX increases E&O EBITDA We that quarter. closure Recall leverage third adjusted X.XXx the nonrecurring maximum covenant EBITDA the and year warehouse million EBITDA for calculation adjusted versus with a allowable the in costs at

Now year, generating 'XX. the our for fiscal cash let's In and guidance for outlook turn establishing primary full remain free strong objectives to flow. EBITDA our

plan partners growth and strong U.S. operating reflects engagement business. Our retail the yield with high aggressive, single-digit our consumer to for is

control yield trajectory the growth for a may result control the essentially will as on to tight to borrowing XX% year-over-year SG&A of margin, in in paydown are Improvement in income Factors expected typical. debt to lower and XX.X% of expense beyond be gross year. interest with place consumer is takeaway operating of impact an is expected combined as higher costs sales. Below quarter the take will and operating line, be flat fourth average our

and and quarter have seasonal of ETR grow that on based a as as share Note recovery, manage From in XX% now near-term between X outlook be SMG. headroom swings outside million the support within capital. our capabilities requirements. XX% by most of our of talented iconic as innovation proper period of associates and any and cash a we our Hawthorne's -- the our And covenant balance supply working we second fundamental flow will up, the sum acute well advantages in free To with phasing perspective, shares. leverage lastly, our X.X the our billion chain count will Margin net solution the our brands, for $X XXXX beyond see the priorities: to future

precision. We on focused are with executing

path improving return We to can trajectory I'm outsized confident have delivering a our returns. determined is we that and that forward shareholder and

we back questions. With that, to so can Operator? I'll call the answer the operator turn your

Operator

from [Operator Instructions] comes Jon William our And first Blair. question with Anderson

Jon Andersen

business. a years What of the like that talk underlying if U.S. couple we've been assumption price the of of because needs happen off outlook you're consumer the and a is was hit just in in where order XXXX in are high around coming growth it kind Matt little assumptions about price reverse. point-of-sale there XXXX could growth, kind the what investing some to target? sounds in to of volume, bit your for you that underlying growth of baseline single-digit assumptions wondering I more commented

James Hagedorn

Okay.

I you just business I look So it risk shows volume big I events I the is the okay? I -- So and think what up. at put -- When growth -- question. as flat, said out put would that's is consumer across the it's there, a if global and

of [indiscernible] that's But that Jon, I is the as are we've decline I'm think descent across hit an you XX% kind about and If are retail. which footsteps, at kind was from think can like the these at and viewing kind losing what numbers you called move. been little altitude. It average stop heroic it we average of sales right, XX%, a gain think, a just is hearing altitude, DIY board. of I I you look if

the is same. think what I we're saying that stays So

of positive different -- Now altitude. is . this back that's we to what's sort positive maintain

very Okay. a garden Retailers as category. on and are lawn focused

of other our there's that of a putting I to think kind retailers couple super that's kind going are that efforts. cleaning, saying, expensive all and of they're where don't categories know, be not I

So personally and is law But time hard a have there's ton and category, the into seed issue work data, on at retail of the drive I the all I view of with happening the a positive. level store think consumers pretty elasticity for to as within current I it. the real. the I this that think I'm a spring.

it's you other a lot here's sales, here's have you shows a of weather factors, consumer that, hard somebody within apprehensive. when pricing. Now But that's and

telling sure directionally, people but are I'm I believe I So an that is elasticity anything think not me, issue.

on We have we that. really seeing we're good pricing seed adjusted results and did and since ferts,

I level positive that again, over to put a as victory. sort If this we argue we're So big think in of yet. can thing. don't it -- order we to this hand a want that's I

homeowners, In who consumer healthiest money. we're of going spend is is addition, core on lot the put they've to our savings. the marketing. generally They power. We on there. more the consumer where These made change And a that it, focus are are, in got out we they consumers our time more college a educated, got

savings expiring. time people projects. from are think sort doing is looking And excess more data home spend I retailers will at we that the think says I everybody's COVID of and home, at

we after again, [indiscernible] a knew know it think we okay? understand bring elasticity, in positive but not I'm And door, Then many front I and anything we the start. where the the level only and footsteps garden. why business, in us. don't pressure had in XX% for our to can into a core that's missing And it goes think to retailers, on retailers are this of grow. I people we lawn if you major that's reduction

to And I sales time on this. to some challenged a of where them rebuild exactly sort came at to our to we're contribute margins, and cost me Lukemire us to was And of open-minded force Mike ]. that, [ the trying not

years, for and in in force builds that what this And of is the force complement business, is real execute challenging performance and a is in The powerful. our a couple our maybe in the sales what. relationships to our it's and to exchange of year, sales very like store a our very ability

And retailers the so promotions saying, sort in other it's out, size with to need you. this people cause when we we'll give we doing. are of that to we contributions exchange listings don't help to worth you will go you gave that And have,

traded we Now what improvement for -- of would margin been about have acceleration of our this. X/X

promotions I in before, think -- But And very you volumes so we personally the out is that -- were got were entire listings with last much how what it. other people priced to in at gets people, they didn't to they that's us what And gain we numbers. other year. worth the to year exactly at these were didn't at that that go have or priced before,

Josh, talk I margin had are to Nate we -- that and numbers who talk think revenue this because it's could confident probably feel if you we interesting are and in want people about want to call. We prepping say, have it and and would we've a the about gross I are been it... feel, if Josh other our here I debate think ones for that it as big -- most very

Unknown Executive

No.

and smallest it's It's stores said elasticity space the say, is really incremental foundational X it on of I pillars within -- what think factor and Jim. well, listings, the the built incremental that then it. that's you part incremental it's then merchandising promotions of would we growth

partners has well. look growth same. team when the the at we it early retailer So the of They're a in as in ton confidence results, forecasting and doing the our it are

James Hagedorn

this know all, don't show. call, the I risk what's said, big big as prep is for coming consumers that risk we we is how forward. But don't

that's it's probably it excess about significant And how little a people could traveling savings of is great We in think that to year. we are think could spending home. of spent we're where worse? at, I approach there's yes, going reduction a footsteps think people really there lot saying we and last -- are a that sort worse. this was at and where people to who but we're that's what get be people it's we not volume. a Look, think say, writing saying have their less Do true, be will that no there risk, more thoughtful think some COVID time

Matthew Garth

we Josh Yes, statements $X flow reestablishing which to the the other and to are honestly, that through line. Jim That EBITDA, where margin intelligence have side, that line. improvements starting going market, POS a can the what here in billion I out, drives and doing we're strategic as in top those because going balance high be starts assumptions accretion Everything then terms brought downside of the leave table, cash into, drive that in broader the absolutely items we all up, shortly. you, to margins on flat off with driving through financial to cost-outs, beyond Nate of that is question, free movement about could components more we to which POS of talk the went around are what of X we're how for being there flat is operating top move on single-digit Hawthorne. in that dimension higher the with solution driven think rest going, this, The which you

improvements these insight, And to level a have to this our of the us with so allowed who year. them and work confidence start connection good is retail to with on partners

Jon Andersen

you you to end to was 'XX. helpful. of mention for margin margin dimension point least just EBIT in follow-up. XX.X% level gross across or operating that outlook suggest, my right, XXX XX%? XXX that's a It you gave operating -- 'XX. if or basis close X that kind help of little of little The And That's -- Could and bit ratio? guess, quick in on I'll I would muddled. SG&A Sure. little income at XXX a improvement kind that Did

Matthew Garth

Jon. I the was there to drive question some because you, to point. Thank at going appreciate I it

into you When right. north you're gross be margin So it, back XXX of bps. will

I Project driven think savings over-inventoried previously been Springboard, these that our are through has there working that getting position the what by additional the will we of way, to through a on second about the year. with rate talked getting higher and come in listings. volumes expecting additional back And just through have we more normal production half

will and SG&A, down of we that All long-term to between you for XX%. said XX% should had margin. be company accrue move . When into the what the modeling previously,

to For what telling you XX%. and between is XXXX, we're be XX.X%

will in areas. down narrower in dollars important be on the That XXXX. We necessarily doesn't SG&A mean

repositioning are activities X into innovation. We driving That areas. to and those of marketing, on force into net into focus result dollars is we sales the the all the are

Operator

next Truist Eric our with Bosshard then Research. from Cleveland question And question comes next Bill comes with Securities. our And from Chappell

William Chappell

the to category, to of love thing. blaming were risk we be issue, expansion. and following is year, within X going just on be for you the engaged. were don't pretty bit but have a skeptical, of tone mean, we time last year, a in little This same too great consumers lot a reasons up terms And to we're going the had global the retailers and months, not I warming, the think among see I much this our Jon's other question to

the set? Or hey, that, any new levels. XXXX it just data there back new really view to year, is there have? Is is of information consumer kind last any So time this a you wasn't

back forecastable? until feel more we we're it's Now XXXX to

James Hagedorn

and live a we consumers world there's I'd start by and in retailers.

like of what year, was thing. up last the whole X.X As the we to lawns was like Did thing. here's heels that much sort Volume we as we wanted in No. felt okay? points, achieve

last on you you retailers down of I was to would you know do I year, for where way, talk is we when sucks. the and say by know did guys So we we that. garden I guys what lawns. was us, they thought Lawn warming, and think global it's think about But ace fell say, part great.

yes, in So by this just I'd is Bill, continued saying, slog. start like, the

I data is a -- I on the year that? it lot think good have just and at Not didn't on. pretty I [ for under by start exactly. It do was look did where ton revenue we I I'd awful lawns had us say we the pressure. ], issues accomplished and saying maybe that solve bad. data we year and an -- feel should numbers? we But make But a of matters. And their

it's everywhere pretty we much did business. except big think I and lawns, a

I at the We're saying flat team selection just -- relationship the of of much sort agency on just a haven't creative the And marketing signed for -- we we agency the on level, approach paperwork. that a global -- -- new larger focus the Scotts. world-class creative on an

Matt's like... that's -- involved in probably So

Matthew Garth

not down. no. No, I'm slowing that

James Hagedorn

you, mirror when lot And a good weather was there's of to on it commercials level spring with was when help the learnings changes but promotion, thing. -- don't And the the talk weather results And lot -- phenomenal, what really right, that's like early looking really spring, with of is think we not any the we great, that lawns, we really -- the there. good. a of went in I'm bunch hardly everybody #X of combined in weather did. Weather the was factor the with advertising, I not And The campaign and about we the a to Texas blaming saw a is we there. tell says the we is were where the tried of Florida, I and okay? the I to So I Now made time a wrong -- that was let's us. were is start the weather. But Northeast what saw at a in first really fall. going saw about lot POS. result the in of know here saw

chasing media, media. been that at saw into of -- and going And we're up pretty change sort going gets the homeowner spend, of much kind little traditional and made that back -- to our a this be us there's focused home maybe anything. it market. and who based our core young, None sports dispersion level, we March in is, been the intense, look of we news bit on of that to people basics look money hard okay? and on and into Madness sort a inventory new they at is group. time today and of forward ever have is marketing The back are So our lack it consumer about challenged our And the more not going social coming, rates to reasons to we've to is core consumer, a a interest be the older creative losing than buying basics on and the more and on spend. of [indiscernible] than we nothing chase here one approach was of as when

the we basically deserve that on throw throw us, But the sure. all us it's you can with you can bad. accomplished And was have the think the that because our Weather people s*** for would say on factor. a are committed this we something I retailers can can, line, to. I if data same And was it. lot. -- follow year we share a we you And at that But sales we you not is

factor. We are a

the at glitches we're think point, the that [ ] promotional on I retail Flat year. is But really good at it, got expecting from business. were this XX% didn't lot. for we've previous that help there the years call business think don't a think And X before. I probably lawn a down plan level I a the

don't I we're the here. think for really So fence swinging

back is this we basics, add? know. back know, don't stuff to you think Nate, to want anything I I to

Nate Baxter

absolutely. Yes, Yes.

a So pleasure able of to be to talk all to you.

us. a Bill, That's think Jim would are side from So the doing the media And change side. question, on and year. I creative big differently the highlighted what for I asked we last

I thing analytics up our think been insights building we've toolkit data We've is, in the tools got our more team. today. and other

you're weather, of give hear as excuse. heavily I'll results, doubt a into. one going it It's factor, There's the you things it's case right? no really example but a So about us of leaning of talk not not And to an excuses. an we're

in over those What trying U.S. and media in help had the make some adjustments. in of predictive our our results machine proved modeling to some We that to is of some were fall, and the get models. the on use We fall. to the based heat early and able smarter do dome us terrible of you targeting We learning adjust we're saw and POS.

we've on operation, And our said but to heavily is think So I going focusing we're consumer. reinforce talking you're what I'll our target changed fundamentally big about that, marketing. to whether core on don't want -- I how Jim rely too the and

lost manage to tried we we've spend I sight and who of today. has think to As this the tough, transition it's to been digital, dollars

that's change. big So a

the just lot back And it, done then on margin we've the perspective. a that supply haven't end chain help on I talked ton optimization, we us and side, will a but from think about a of

but So more. we past. smarter It in consumer in 'XX. any I'll same the going they way yesterday. to we're yes, plan, with the told We're in did shows internally assumes And up the thing work than up it's same close it's assuming trying exactly not just the an I aggressive -- consumer the have team is to the show

to Now . But the going risk, flat less. POS could plans up of these promo that there gains show help and they built assumption. the they're It's drive on listings volume. all are just new a is

William Chappell

it. outlook year. the in don't shipments, if quarter. especially quick of on you than earlier this or And for know just revenue I of March Got some then, quantified normal kind I know kind there was follow-up a Matt, don't the

high if first So second you're year, coming all is full -- half? half? when in mean, single-digit at I looking growth that know you didn't how growth in the for that you grow will the the I Or

Matthew Garth

average And Yes. you bit laid kind versus see you versus historic what of the is I our when I will year at revenue 'XX. Jim mean, a a we're normalized for think XXXX. little worked last how more out expecting look 'XX seasonality

conform So we've more done will what it historically. to

you'd would normalized half overall, the So themselves across but we year. are because be growth see growing first shipments more yes,

Operator

Eric Research. next Cleveland question comes from Instructions] with question Our [Operator And our Raymond Bossard Joe with James. from Altobello comes next

Joseph Altobello

if clarification, a of will. sort questions, you Two

drag In terms is expecting baking you're pricing that into single-digit consumer of year, what U.S. high this that? the the growth you're

Matthew Garth

was are Jim [indiscernible] single to we be. said where that margins about But gross impact. on X/X going gross low down margin, line, it the of top think the digits. translated on would to have

kind single to me between of low digits and says X% X%. So

Joseph Altobello

that well. margin. on as And that. follow up on me to maybe Appreciate gross does to it And

is that from I up into And much costs? this over some basis this think sort XXX you much do year. have point? input given of visibility at that that locked that in of coming of points how lower How mentioned is you

Matthew Garth

a No, Yes. question. that's good

unpack few So to that components there's we as it. a

good sight which to I'm tell line Joe, We to going more what controllables, you, of probably our very than have is a half.

the Springboard. the you bit that more, are, Maybe about your So talk Nate in. that's mentioned doing little coming supply locked that company. optimizations to of everything things rest from can some across chain. words, a we're Those

of costs in. us last about we've what everybody's raw favorite our what we're that's a go kind have X/X from been XX% raw seeing We of of what from it -- it's area, was seeing year. material locked it's to, side, material is to And

of our a of a the of basis. kind high-single is of natural the help a So there additional leverage and merchandising fixed flat piece elasticity the some open of additional off uplift that saying driving at from X/X a us and base, that that The coming will listings, POS that's be the are volume-related little cost getting some promos again, and digits, the we operations That you're the side will high-single the of And is digits, benefit. but volume there. all elements and piece getting overall is less will benefit contribute than we're the that.

performance margin, chunk going the help is to locking us volume get of in So a and it. good

Operator

question next with And comes Carter Andrew Stifel. our from

W. Andrew Carter

high if for consumer assuming are it, said What I you Yes. apologize, other?. sales. I don't single-digit you said you know sales in and Hawthorne

Matthew Garth

We which We've stabilized made was it. which the early year. Yes. the at profitability things my not you it And a of the for enough, end was on revenue. in daily of a got through Hawthorne know, year. We commentary, has, implied clear way we kind to is as rate our going few saw as obviously that in

brands have out year of very to down of the the number overall We slightly, we That our drive low single-digit going improve distributed so there made taken for number some through and a portfolio. our proprietary a is sales overall to Hawthorne. brands as

we're will of those Hawthorne terminology we've down. in at yet a the it seeing sales the trajectory of industry. the was change the that slightly not be So movements or business, with that in performance in But made

W. Andrew Carter

your vertically Okay. looking instance And in to profile RIV like still separate? for I you then to do pavement hydroponics cannabis derisk company, from something go the Hawthorne to and which Are said this the Hawthorn you with scale the add to to in a are a Or second looking investment is have earnings because pounding operator. sector? wanted you commentary interesting is Hawthorne in ask because a you question around integrated an looking

James Hagedorn

that desperate. Are Chris? We're Pound not the the walking. pavement, we're street out of we, not

Christopher Hagedorn

describe that wouldn't I way. it

James Hagedorn

and we and on love brief is the opinion and They're can't I we category. it Hawthorne I've stay with Here's [ had could here the I to forming contributor. of But guys, [ up. I'd how ] will wish are kind given get at guidance your be the a I'm think this team that kind on you profitability, with things NDAs actually ] like I start we at, of you. where

I town. and a kind suffered taken there's kind think of has lot get of but an That have probably of lot than out a you. a basement, analyst part more that ratty may to to be says And we about it knows a studio not that mom-and-dads Chris we're getting work there. people of and just able move of of

So you the been understand, journey, challenging. has

the needs is, And here. $X category. and I've we the people the think to EBITDA are mean gotten like it to terms, be billion. They're of there. we It -- dominant. other got has the think enough in we team idea think do be earning large for this, us, Matt I needs of north Chris well I needs have given don't to are to I sort digits. it's be think be And to And -- It of, sort And it's fortunately, significant followed. theme. strategically. in triple this working And kind a to to I I can't of which have we're of that be that same not includes stay there's business guidance

business real business XXXs, But Hawthorne we stock there therefore, the the I the think benefit. were And when no was consumer apart, in the valued. thought them fully was and splitting

critical not I valuation them least Hawthorne, there's of way they'd solution I at think to where by unappreciated, of I think our of a not probably it's see think the part a today, it's shareholders on Scotts. negative a and I in lot most mean sort or like

are of so these priorities that trying Chris manage. to kind the is And

Christopher Hagedorn

Yes.

think, I outside which moving all for So I There's as When SMG just detail in is of what options I question, much, Hawthorne, look at it think a fashion. we we're on address in saying considering of to of the build Andrew. options. involve bunch and Jim as your can, some

what consider, that partnership. looking lot would are for mentioned, that brutal just Jim by fundamentals have, I a have of been really also downturn victimized there As a who companies market sound are

-- the both to would world going cannabis. those were beneficial sort And there shareholders I and Those like at are X I and and obviously on a elements Scotts constellation at some kind see in to of just I'll that opportunity a at investment RIV in where of was love if those SMG cautious to RIV, as that of of look an kind think companies just supply Hawthorne, equipment our is like over employee more other because companies to here I'm hydroponics be Hawthorne are director side, I'm look, RIV. an

would roof. love bucketed I to the under same see those

built in. we've us the would pursue business SMG I relates it's least accretive it that presents -- believe would that in which there's innovation, now, But we the continue its things be transactions to shareholders, at is as Hawthorne, on, itself, X say and or would opportunity and beneficial innovation, to if we So lighting. to to are equipment beneficial support again, like criteria: to allow particularly think and pursue right something companies is interested our that focus it's, we I

an I made great that strides. area think we have that's

I think the industry whole has from as that. a benefited

genetics further-looking R&D to that Other want then the ultimately and something industry. like investments benefits continue that. in We

criteria. So the X those are

stuff. a at with there's think pursuing I of to But you would think it's a more next Jim a the months. moment. love lot I interesting more transactions We're share out earnest a number fit have bill. guys. that the we'll in lot there share And here I that as few over it them lot of of said, of to

James Hagedorn

with not We're of X years clear. we're sort -- not valuation. the dumb struck chasing so we're and was and But this idea is ago,

we partner. this is can think where I

don't own the do how we We a to the partner to start necessarily be of have we're Scott using don't think But this. the respected shares think -- is business that but boss, shareholders, or something where in partners, be those like with that. I distribution cash to we possibly be in want we of to accept but partner, the get I we have to this managed. releases, previous we one free is will

as about of these can still started a we out And I it you I that we of that contribute talked prepared. here. professional management different in, this managed And And as levels notes and business, think were -- lots and as I is. know, business there's sort of think, we've Matt's think as that professionally business, team within a have professionalism. This business,

pipeline. top got got this R&D these we've great great So think I brands, on of we've

can We that being company public into that's to a also have whatever a this co. leadership in professional used contribute

think. pretty it's exciting I And

some in deal know one or looking just how And laws That's like meat whether It's we're kind other now It's say we're you enthusiasm. and doubt potatoes We talking as with there's [ about thing down anybody. not can and And this. I Hawthorne business have that a what their to not it's the to it's Everybody is enthusiastic. it's getting discussions. and issue that, businesses. at to that. all do clean Now to people ] RIV. -- burden know, of any extent, XXX%

can't these for exist cash else anywhere combinations. So on RIV. in we that business. is doesn't a lot to RIV like relative I feel a of mountain we offer have But sitting speak this

there's kind a want And Board have where a it's on not give meeting and parties. keep it. so It's because X we one it's especially because lot -- to them are credit current. It's and just is I Chris to to, complicated to enthusiastic, Friday multiple of of -- we're we this also party permutations talking to

of a to to partnership can But not to people of And if maintain I and think call I make because fight that's people lot opportunities changes this we're those you're balance tedious, attitude of create and lot balance, bad some of for are where think is sure phone phone of the getting lot and this a get we'll trying good be to anybody's really everybody And call, people we things people's value very a on a we people. that I a and those or and think maintain great every it conversations have solution businesses can change old I'm that battles. moves talking burden a -- money, with listening in business that can unique other something some a sheet. and can if

Operator

Bank of with And comes next Reuter [Operator question our Bill Instructions] from America.

William Reuter

ones. quick I just have X

incremental first and way of question reductions, So contextualize the the the slottings of got first you received Q&A. into you price the a that? to there space during result any amount this shelf as or is of that is, But in kind

James Hagedorn

I'm to, you would high is a billion $X-plus you're I significant. this which think I say pretty not want single It's if digits, I but talking accurate. say business sure and

of Matt multiply has has about issue You -- there sure pressure And out a come to does how testing feel and really how the this. can you'll . it of guys process side a operating -- you just number. been led really this

Nate Baxter

with love Matt No, he's working say us we would that Nate. what honest. is I done We're not is hand-in-hand full that about And is is retailers. I quite this keeping This what bottoms-up, Yes. with actually, did process. a

and the the hand-in-hand, Thanksgiving. know, with again, confident operating We're do we're As new of up will would promos all on bulk you then it just plans, in say, most and retailers. it it call it bit those we'll as math. said, those working numbers. the smaller almost on just and probably the And out and our finish of Jim can I and of listings you pretty frame And But before through the growth. is about equal price are is elasticity related I those merchandising, of

William Reuter

out great change numbers want strategy spending of you it. did guys way dollars. that? in make got the numbers that it correctly. Got you 'XX. fiscal by marketing I year that any... you think to then you're you put And the to of increase the say in you're marketing I to fiscal I explaining don't the you job kind said then in just a 'XX. laid going of increased XX% some And year you're Did think terms I sure I where caught going further Did you any around

James Hagedorn

okay? Okay, XX%, it's

Matthew Garth

Correct.

James Hagedorn

budget. that yesterday, the This Matt just whiteboard year of changed He a still spend I 'XX my is here. number additional media to the giant kind that's tally keeping of an is positive. was in since on but up That where had want it's motion more ended. there

little solve as And but toward kind which to I'm team we're of the target a incentive that we So looking okay? issues just to just highly number we need payout, XXX entire put that the a so of we're management it's you for, -- money for is to looking bit that. I achieve we in, giving is XXX. And going incentivized solution to think I'm said on be visibility. what from you is more

a forms XX%, which digital not it would is media. I I'm sure and than back it of that more moving but in it is been spent number basically, is is into XX%, have other if money said The -- taking traditional

think person very at call I insulting an probably traditional I can category. toward linear, like think more, as least something call, what I we're do and I year. ] maintained If we phone not in, I it's I'm then people and we toward So a use more analog what last because working because in move [ find though. older it media or what spent that significant a flip that put that's

Christopher Hagedorn

bigger comment. significantly, And way for much dollars to although in partners to the so this we'll the new Bill, that. spend referred record, piece The are that's spend working So Jim the increasing be coming we spend year. just on story way And dollars Mediahub. going totally our how and spent of the to than It's isn't year The I to of we're think I'll we the our looking the agency story the media. media the dollars. last different do

William Reuter

I guys it tied think up you right there.

Operator

our question And last comes JPMorgan. with from Instructions] [indiscernible] [Operator

Unknown Analyst

if cash you expect to for expecting I And in be of during quarters and X to the capital working able ask you what pay XXXX? just to for terms be to revolver should capital working of wanted next the 'XX? we build down if expect remainder FY generate fully from

Matthew Garth

Yes.

So -- in seasonal a normal business. our we working capital build have

As highly you a expect, we're business. would seasonal

what in to to we as is ship our retailers quarter. work the on in So first getting to place season the inventory out comes be able

inventory of the AR with from higher. move in cash That build the plus as peak you second you where year. along position quarter are see the absorption to of that's the working driver the first XX% So an quarter. through main first we And you the the of then year. And of goes capital generally in our XX% half see

cash 'XX, of is will I the free pointed you cash in flow the that That we pay with year flow, of our use was bulk So 'XX. repeat. to will that we be And consistent then much generate And the we QX. cash what to this in in year to debt. debt half revolver. all will that The as free back generated said, the flow our happens down of down, pretty free pay when choose

Loan also that available B us. Term have is to We

XXXX, don't that is beginning due in million. senior of of $XXX maturity have come manageable that We until and are place that a notes

So at term time, choices, to cost the highest which most it's but that down loan be going go we have the base. that the either revolver or debt to we have will likely paying

Operator

would concludes Baxter. Chief that it now I Nate to question-and-answer And like turn to Operating back session. our Officer,

Unknown Executive

it, planning beginning I investors. say all wanted for the late a bring out, spring. just of day to We'd like that field you stages in to call we're

tuned. stay So

that's Matt you got operationally and the team of and the I we've also to sort innovation of I, think some pipeline. different, the what's there's with like the a and Jim we'd rest lot changed but here, share not of with and in that only

So for that. stay tuned

Operator

Thank for today's participating does program. in conference. the you That conclude

disconnect. now may You

The Scotts Miracle-Gro Company (SMG) 1 Nov 232023 Q4 Earnings call transcript