Scotts Miracle-Gro (SMG) Q4 2026 earnings review
Scotts Miracle-Gro beats on profit, but delays its debt target
Scotts Miracle-Gro, the maker of Miracle-Gro and Ortho lawn care products, beat its full-year profit plan on lower interest and taxes even as fourth-quarter shipments dropped. Full-year sales rose 1%, while fourth-quarter sales fell 11% as retail stores worked down leftover stock and fourth-quarter gross margin turned negative. Chief executive Nate Baxter set a fiscal 2027 plan for 2% to 4% sales growth and $4.70 to $4.90 in profit per share excluding one-offs.
| Full-year net sales | $3.29B +1% from a year ago (Q4: -11%) |
|---|---|
| Full-year profit per share, excluding one-offs | $4.48 +18% from a year ago; beat $4.30–$4.45 plan |
| Full-year gross margin, excluding one-offs | 32.4% +0.8 percentage points from a year ago |
| FY27 outlook | Sales +2% to +4% Profit $4.70–$4.90 per share; 3.5x debt goal pushed to FY29 |
⚖️ Verdict: 🔴 Bearish
The story got worse because management pushed its balance-sheet timetable out by two years and softened its margin goal. Finance chief Mark Scheiwer now targets debt below 3.5 times cash profit by fiscal 2029 instead of fiscal 2027, and replaced the old mid-30s percentage gross margin target for 2027 with a promise of continued expansion. On the positive side, the company paid off $250 million of senior notes and held full-year gross margin above 32%.
The question now is whether the 2% to 4% sales growth plan for fiscal 2027 reflects real store demand or just price increases and the new Black Kow acquisition. Either retailers have finished clearing their shelves and will order normally for spring, or higher prices and leftover stock will keep unit volumes flat. First-quarter retail sales and inventory numbers will tell.
🐂 Bull Case
Debt Paydown and Tax Rates Drove the Earnings Beat
Scotts Miracle-Gro, the maker of Miracle-Gro plant food and Ortho weed killer, beat its full-year profit outlook through financing and tax savings rather than operating growth. Full-year profit per share, excluding one-offs, rose 18% to $4.48, topping the $4.30 to $4.45 plan set in the third quarter. The lawn and garden group said results were "aided by lower interest expense and lower tax rate".
- 5.250% Senior Notes: $250 million repaid in full during the year
- Full-year interest expense: $112.6 million, down 12.7% from a year ago
- Effective tax rate, excluding one-offs: 26.0% by our math, below the 27% to 28% outlook
- Adjusted EBITDA (operating cash profit before interest, taxes and depreciation): up 1.8% to $579.9 million, missing the mid-single-digit plan
Retiring the senior notes removes a near-term maturity and lowers ongoing interest costs, because total debt fell 3.8% to $2.03 billion. However, operating cash profit grew barely a third as fast as management planned, so below-the-line savings carried the beat.
What to watch: first-quarter interest expense and the effective tax rate outlook for fiscal 2027. If the tax rate returns to 27% or higher, operating profit must grow much faster to hit the new $4.70 to $4.90 earnings plan.
Full-Year Gross Margin Expanded on Branded Mix
Full-year gross margin rose even though fourth-quarter shipments dropped and raw material costs climbed. Finance chief Mark Scheiwer said the company expanded its margin "despite a challenging commodity and freight environment", clearing the 32% target floor it held all year. Full-year sales edged up 1.0% to $3.29 billion, "driven by growth in our branded products and continued e-commerce expansion".
Gross margin excluding one-offs rose 0.8 percentage points to 32.4%, while the reported rate gained 1.0 percentage point to 32.3%. Selling more higher-margin branded items instead of bulk mulch, along with factory savings and price increases, outweighed higher freight and raw material bills and the lower margin on online orders. For fiscal 2027, Scheiwer plans "continued expansion" rather than repeating the old mid-30s percentage goal.
What to watch: the fiscal 2027 gross margin bridge on the conference call, specifically how much price increase retailers accepted for the spring season. That figure will show whether pricing can cover urea and freight inflation without hurting unit volumes.
🐻 Bear Case
De-leveraging Target Pushed Out Two Years to 2029
De-leveraging has been a central pillar of the turnaround story, and chief executive Nate Baxter said the group "significantly strengthened our balance sheet" in fiscal 2026. Yet management quietly pushed the timetable for its debt target out by two full years. Through the first half of fiscal 2026, the company aimed to bring net debt below 3.5 times Adjusted EBITDA by the end of fiscal 2027.
Now Scheiwer says the company is committed to de-levering "with a path to 3.0 to 3.5x by fiscal 2029". Net leverage ended the year at 3.89x, down 0.21x from a year ago, but up from 3.78x in the third quarter because fourth-quarter operating cash profit dropped. At the same time, the US company spent $37.7 million buying back shares this year ($25.6 million in the fourth quarter by our math), so diluted shares still rose 0.7%.
The two-year delay matters because the company generates about $275 million in annual free cash flow and pays $154.8 million in dividends. That leaves only about $120 million a year for debt reduction, share buybacks and bolt-on acquisitions combined.
What to watch: share repurchase spending in the first half of fiscal 2027. Any ramp-up in buybacks before leverage falls below 3.5x would slow debt paydown even further.
Retailer Destocking Pushed Fourth-Quarter Gross Margin Negative
Retailers entered the fourth quarter holding excess inventory after slow spring weather, and the resulting pullback in orders hit fourth-quarter profitability hard. Fourth-quarter net sales fell 10.9% from a year ago to $302.9 million, with the core U.S. Consumer division down 10.3% to $279.2 million. That drop pulled full-year U.S. Consumer growth down to 0.8%, barely positive and at the bottom of the low-single-digit plan.
Because the fourth quarter is seasonally small, lower factory volume and higher freight and commodity bills pushed the cost of making products to 100.7% of sales, up 5.9 percentage points from a year ago. Gross margin turned negative at -0.7%, down from +4.8% (and +5.2% excluding one-offs) in the prior fourth quarter. Meanwhile, inventories on Scotts Miracle-Gro's own balance sheet rose 6.5% to $577.9 million.
What to watch: first-quarter U.S. Consumer sales and retail point-of-sale figures. If retail stores still hold leftover stock, early orders for the 2027 spring season will stay soft despite an easy comparison from last year.
Recurring One-Offs and a New $100M IT Exclusion
The gap between reported profit and management's preferred numbers widened again this year. Full-year reported profit from continuing operations was $3.30 per share, $1.18 below the $4.48 figure excluding one-offs (last year the gap was $0.70). In the fourth quarter, the company started a "multi-year project to transform its information technology (“IT”) infrastructure", replacing its core enterprise software through fiscal 2028 at a planned cost of over $100 million.
- Fourth-quarter IT project costs excluded from overhead: $13.5 million ($6.7 million in consulting)
- Full-year employee and executive severance excluded: $28.1 million across cost of sales and overhead
- Cannabis and non-core write-downs excluded: $8.7 million on a seller loan, $7.9 million on convertible debt, $3.5 million on other investments, plus $14.7 million in unrealized investment losses
- Discontinued Hawthorne cannabis sale: $106.2 million pre-tax loss ($91.0 million after tax), including a $4.3 million fourth-quarter adjustment
Excluding routine consulting and internal project staff for a multi-year software upgrade flatters overhead expenses, which rose 10.0 percentage points of sales in the fourth quarter on a reported basis. Furthermore, write-downs tied to exited cannabis and side investments keep appearing every quarter.
What to watch: how much of the $100 million IT budget is expensed and excluded from adjusted earnings in fiscal 2027, as it will reduce cash flow even while boosting headline adjusted profit.
👓 Other Themes
Black Kow Acquisition Starts the Tuck-In Strategy
On October 29, after the fiscal year closed, Scotts Miracle-Gro completed the acquisition of Black Kow to expand its organic gardening and manure line. Management had previously indicated that small bolt-on deals would add roughly 1 percentage point to annual growth starting in fiscal 2027. The press release did not disclose the purchase price or how much of the 2% to 4% fiscal 2027 sales growth outlook comes from Black Kow.
💲 Other KPIs
Free cash flow — operating cash flow minus factory and equipment spending — edged up 1.6% from $273.9 million a year ago and beat the $275 million target. Operating cash flow was $373.0 million, while capital spending fell slightly to $94.6 million, or 2.9% of net sales, inside the company's 2.5% to 3.5% target band.
Uncollected customer bills fell 15.8% from $160.8 million a year ago, dropping faster than the 10.9% decline in fourth-quarter sales. Collecting those bills brought in $27.4 million of operating cash this year, offsetting a $35.9 million cash drain from higher inventory.
Sales in the Other division, which is mainly the Canadian consumer lawn and garden business, grew 3.5% for the full year and segment profit jumped 47.3% to $19.3 million. In the fourth quarter, however, sales dropped 18.0% to $23.7 million.
🔮 Guidance
Unchanged. The new range sits centered on the 3% annual growth target management set last year, stepping up from 1.0% growth in fiscal 2026. The company attributes the planned acceleration to pricing, new products and brand investments, though the recent Black Kow acquisition may also contribute.
New. The middle of the range ($4.80) points to 7.1% profit growth by our math, down from 17.9% growth in fiscal 2026 as the big one-year drop in interest and tax rates laps. Management beat its initial full-year earnings plan in both fiscal 2025 and fiscal 2026.
Cut. Earlier outlook notes called for the gross margin rate to reach the mid-30s percent in fiscal 2027. After finishing fiscal 2026 at 32.4% and facing fourth-quarter commodity and freight inflation, the lawn care group now promises only an unquantified increase driven by supply chain savings and pricing.
New. The cash flow plan matches the $275 million target set for fiscal 2026 and sits 1.2% below the $278.4 million just delivered, as capital reinvestment and the multi-year IT project continue.
Cut. Management previously targeted net debt below 3.5 times Adjusted EBITDA by the end of fiscal 2027. From 3.89x today, the plan now calls only for a drop in fiscal 2027 and pushes the 3.0x to 3.5x target range out to fiscal 2029.
❓ Key Questions
How much does Black Kow add to 2027 sales?
Scotts Miracle-Gro closed the Black Kow acquisition six days before issuing its 2% to 4% sales growth outlook. Investors need to know the purchase price and how much of the 2027 growth plan is underlying sales versus acquired revenue.
Why did the 3.5x debt target slip by two years?
With $275 million in planned free cash flow and $155 million in dividends, roughly $120 million remains. Management did not explain whether slower EBITDA growth, M&A spending or share buybacks caused the 3.5x leverage goal to move from 2027 to 2029.
What were full-year online sales and SKU cuts?
Online retail sales grew 27% through nine months, and the company was two-thirds done cutting 30% of its lowest-selling items. Neither figure appeared in the fourth-quarter release; the call should confirm if online growth stayed above 20%.
Was the $750 million receivables facility renewed in September?
The company's uncommitted agreement to sell customer receivables — which had $312.1 million off the balance sheet in the third quarter — was set to expire on September 1, 2026. The release does not state whether it was renewed on similar terms.