Title

Presentation

The Scotts Miracle-Gro Company misses on earnings expectations. Reported EPS is $-2.15889 EPS, expectations were $-1.04.

Brad Chelton: Good morning. Welcome to The Scotts Miracle-Gro Company’s First Quarter 2026 Earnings Webcast. I am Brad Chelton, Head of Investor Relations. Speaking today are Chairman and CEO, James S. Hagedorn, President and Chief Operating Officer Nate Baxter, and Chief Financial and Chief Accounting Officer Mark J. Scheiwer. Jim will provide a strategic overview, Nate will provide a business update, and Mark will follow 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, Executive Vice President and Chief of Staff Chris Hagedorn will join Jim, Nate, and Mark for an audio-only Q&A session. To listen to the Q&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 An archived version will be published on our website.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 update.

James S. Hagedorn: Good morning, everyone. I am taking a slightly different approach with our call today. I am going to focus on the strategies we are employing to drive more value for The Scotts Miracle-Gro Company shareholders, along with a discussion around new, longer-term financial priorities we have established through 2030. Nate will take you through the progress on our plans, and Mark will close with his customary review of our first quarter results. I am really excited to share where the business is headed. There are a lot of great things happening at Scotts right now. Our company has real superpowers: our brands, R&D, supply chain, and sales. And we are investing them to greater levels, from innovation advertising, and digital marketing to automation and technology.

We have unique and strong retail relationships. We are working with these partners to put more marketing and consumer activation dollars into driving purchases of our high-margin branded products versus lower-margin commodities. These investments, approaching $1 billion annually, are absolutely critical to engaging core and emerging consumers. We are delivering strong gross margin improvement through ongoing supply chain optimization and by bringing new innovation to consumers. And we are in a way better place with our capital structure. We are on a path to a leverage ratio between three and three and a half times, which is our sweet spot. We are comfortable in this range because of our ability to generate strong free cash flow. Our cost of capital works really well at this level too.

Just as importantly, we are taking substantive shareholder-friendly actions that go well beyond our healthy dividend. In Q1, the Board of Directors approved a new multi-year $500 million share repurchase program that will begin later in 2026, in a measured and disciplined manner. The ultimate goal is to get our share count to around 40 million shares. The bottom line is we are more focused than ever on being the best Scotts Miracle-Gro Company that we can be. We are advancing this concept at every turn. And it is having a positive impact on our results. We are on track with our key metrics and have full confidence that we will achieve the fiscal 2026 guidance and potentially then some. That guidance is a conservative outlook that we projected at the end of last year.

And since then, we have developed more aggressive longer-term targets to put our company solidly on a multiyear growth trajectory. That is the bigger story I want to discuss. My comments are less about the performance in this quarter and more about the future. I threw down a challenge to Nate earlier this year to deliver an incremental $1 billion in top-line sales and total EBITDA of $1 billion. I put no time frame on it. Nate came back with the framework of a plan that would have us reaching these targets around 2030 on the strength of a 5% annual top-line growth through innovation, pricing, volume, M&A—not crazy M&A, but modest tuck-ins that augment or fill in gaps in our lawn and garden portfolio. We are now implementing these growth targets, and Nathan and his operating team are putting together the building blocks that will unlock this level of growth.

He will be ready to share that plan in more detail later this fiscal year at our Investor Day that we are planning for the summer. Mark and Nate are also anxious to meet with strategic shareholders who want to be part of this longer-term plan and hear more about it. Achieving these longer-term goals will require a growth rate that is more ambitious than the low single-digit gains we projected in our fiscal 2026 guidance and mid-range goal through 2027. I can help reconcile this for you. We are not changing our guidance. But we do believe there is a good probability that we will outperform it. Nate’s operating plan for 2026 establishes a path to a more accelerated growth rate. The better our performance in 2026, the easier our long-term objectives come together.

We have also built our incentive program this year on Nate’s 2026 operating plan, which includes strong branded sales growth and gross margin improvement that will drive higher EBITDA and lower leverage. To get 100% payout on the incentive plan, will require us to outperform the guidance. I am not only super excited by this, I am also energized by our commitment to significantly reduce our share count starting with the first tranche of $500 million. We believe our current share price does not reflect the true value of our business. Which is why our commitment to shareholder repurchases reflects our strong view of the long-term value of our company. Nate, Mark, and our Board of Directors are fully supportive. In addition, early feedback from key investors also shows support for this initiative.

Upon full execution of the long-term objectives, we are looking at a potential shareholder return in excess of 50% with a share price well north of $100. Repurchases will begin in 2026 as we get our leverage ratio comfortably below four. Reducing our share count to around 40 million shares over time will require an investment much greater than the $500 million. So this is a long-term commitment that will require future authorizations from the board. There is also flexibility in the plan. Mark is the gatekeeper. Repurchases will be made using free cash flow and modulated to ensure we stay within our leverage targets. If we fall short of our financial plan in any given year, we slow the pace of repurchases. The program is a win for shareholders all the way around.

Being the best Scotts Miracle-Gro Company also requires us to be focused on lawn and garden. Free of distractions. The divestiture of Hawthorne will do just that. The pending sale of Hawthorne to Vireo Growth is good for The Scotts Miracle-Gro Company and Hawthorne. It will allow each of us to do what we do best. While we expect to close the deal this quarter, we have already moved Hawthorne from our operating financials. Classifying it as a discontinued operation is having an immediate positive effect. It has contributed to a 40 basis point improvement in gross margin and further strengthens our balance sheet. It will eliminate the impact of the cannabis sector’s volatility in our share price. There is a benefit to Hawthorne, too. Vireo’s CEO is a guy named John Masarakis.

A founder of the investment firm Chicago Atlantic, who is running the same play Chris and I sought to build in the cannabis space. He is driving much-needed consolidation and Vireo is on track to becoming a top operator with a terrific multistate map. He is treating many of the people who are part of those acquisitions as partners and retaining their expertise. Vireo was well-capitalized in acquiring Hawthorne, allowing it to expand into cultivation supply and open up more growth potential for Hawthorne. The sale of Hawthorne will be through an exchange of shares giving us a key investment in Vireo. Chris will also join the Board of Vireo. Chairing a newly formed Strategy Committee and joining the Comp, Nominating, and Corporate Governance Committee.

SMG will enter into customer agreements to continue providing R&D, transitional, and other services. Looking at the bigger picture, it is clear we found a good home for Hawthorne while further strengthening the most powerful lawn and garden franchise, a category that is growing. Despite our delivering consistent positive performance quarter after quarter, we have not seen it show up in the stock price. There is one upside to being undervalued. It gives us even greater opportunities to buy more shares back and deliver improved results for long-term investors. We are not so much focused on quarterly results as we are on disciplined achievement of the milestones that will enable us to realize our financial goals. I hope everyone on this call is excited about what you are hearing today.

We are at an inflection point. We are done looking in the rearview mirror. We have an aggressive, offensively driven plan for the future. And we are very confident about that future and its absolutely on the side of creating more value for our shareholders. Next up is Nate.

Nate Baxter: Welcome, everyone. Jim laid out our strategy and financial priorities. And when it comes to delivering them, I view this as a three-stage approach to execution. The first involves our work to achieve the fiscal 2026 guidance. The second is what we are doing to accomplish our midterm financial priorities through fiscal 2027. And the third is the plan we are building for the longer-term goal of $1 billion in top-line sales growth and $1 billion in EBITDA. The message today is we are on track to deliver the 2026 guidance and the mid-term priorities. And as Jim said, we see opportunities to outperform. But as you know, our season is just getting started. As for the aggressive longer-term priorities, my team and I are developing a comprehensive plan that we will share by our next Investor Day.

This morning, I am going to talk mostly about fiscal 2026. Which is the building block to our mid- and long-term plans. Our growth algorithm is focused on these key areas. First, incremental listings, including new product introductions across all our categories. Second, e-commerce gains across our retailer base. Third, growth in our high-margin branded products and fourth, pricing. Path to achieving our targets is centered on the consumer. Period. Despite being the lawn and garden market leader, we have a clear opportunity to grow household penetration. In some of our biggest categories, it is as low as 10%. At the same time, our demographics are shifting. Our core consumer is the baby boomer and Gen Xer. But is evolving rapidly to the emerging millennial and Gen Z.

The best news is the lawn and garden consumer is healthy and engaged in the category. Our products fit nicely in the space of small, affordable projects around the home. Consumers are increasingly spending time on their lawns and in their gardens, not just for the aesthetics, but for their physical and mental well-being too. All of this speaks to our opportunity. We must engage with a broader and more diverse group of consumers. You can expect us to increase household penetration and encourage greater in the use of our products. We will focus on expanding the channels in which we reach consumers. We are going to drive product development to expand our portfolio and include more organic, natural, and biological solutions. We are going to adapt our marketing to engage emerging consumers and enhance their experience, and we will seek M&A through strategic tuck-in acquisitions that can fill gaps or build out our portfolio.

We are progressing in each of these areas. We have ramped up innovation across our categories. In lawns, a new granular turf builder lawn food with a formulation emphasizing safety for kids and pets will launch this quarter. We are also bringing to market the ten-minute long care program, an updated line of ready-to-spray liquid fertilizers that feature a new applicator tailored for ease of use. Expansion of our successful Miracle-Gro Organics line is also underway. And with Ortho, this month we introduced an indoor light trap for flying insects and new ant trap products. This builds on the success of last summer’s Mosquito Kill and Prevent product launch. Frequency of purchase is also critical. We are doing more to educate consumers on the value of multiple feedings for both lawns and gardens.

We have spoken in past calls about how this effort boosted consumer takeaway with lawn fertilizers in 2025, and there is more to go get. We are taking a similar approach with indoor gardening to encourage gardening as a year-round activity. This is supported by our new Green Thumb indoor marketing campaign that launched in Q1, in conjunction with a new line of indoor gardening products. We have seen positive results with this effort. As for M&A, we are intent on finding innovative unique brands that resonate with consumers. And our initial focus is on licensing or distribution agreements to explore partnerships and test product strategies. Any tuck-in M&A we complete will be margin accretive and have no negative impact on leverage. Beginning in fiscal 2027, we will be the exclusive national distributor, manufacturer, and marketer of Black Cow products.

This product line is led by black cow manure and organic soils. It is going to augment our Miracle-Gro organic line by appealing to a whole new consumer. Black Cow is a premium soil amendment product used primarily by gardeners who like to curate their own soils. Line reviews start next month with retailers. We have also entered into an agreement to become the primary representative for Murphy’s Naturals. This partnership provides us access to a high-quality team focused on innovation in natural insect repellents, and will help enhance the current R&D, brand work, and products we offer in the naturals and organic space. Channel expansion continues to be a focus. Do it for me is an opportunity here. We are not interested in what we did in the past with the Scotts lawn service.

However, we have the potential to be a key supplier of the best and most effective products for small and medium-sized professional lawn and garden service providers. We are testing this concept in two markets this spring, to gauge our full potential in this space. Looking at the online channel, more consumers across all age groups are turning to digital and e-commerce to learn about products, engage with companies, and ultimately make purchases. In Q1, we launched a robust digital platform where we consolidated all brands under scottsmiraclegrow.com with AI-driven consumer guidance, educational content, and e-commerce capabilities as well as the ability to offer loyalty programs in the future. With this enhanced website, we are better able to partner with our retailers as they look to sell more of our products online.

It is one of the many ways we are enhancing the consumer experience. Overlaying all our initiatives is our ongoing work to drive down operating costs and optimize our organization while increasing investments in our franchise. This has contributed to the outstanding job the team has done on improving gross margin. We have budgeted an incremental $30 million in this year for a total of $130 million. We are planning Marysville plant upgrades to support fertilizer innovation. We are going to increase automation across our supply chain, expanding the capacity of our growing media network to stay ahead of growing demand in our branded soils business, and implementing transformational AI and technology company-wide. On the brand side, we will continue to increase investment to the tune of $25 million this year, focusing on key areas such as media, digital, and R&D.

This incremental spend is enabled by the transformation work we completed last year coupled with thoughtful reallocation of resources to focus on our priorities. Some of this will include authentic marketing campaigns geared towards the growing Hispanic population. In addition, we recently secured the naming rights to the Columbus Crew Soccer Stadium, providing great brand recognition for the Major League Soccer season and upcoming World Cup events. Soccer is one of the fastest-growing sports, and its fans are a key demographic for us. As you can see, we are making progress on multiple fronts, and are on track to our guidance. Our 2026 plan is solid and will serve as the stepping stone to the bigger financial goal. We have the best brands in a unique category, and we are looking forward to bringing more consumers into the wonderful world of lawns, gardens, and green spaces.

I am most excited about the momentum we are building. I see many more good things happening for our company and shareholders as our season gets underway, and the year unfolds. Here is Mark with the financial details.

Mark J. Scheiwer: Thank you, and hello, everyone. Jim and Nate provided a great overview of our strategy. All the work we are doing to successfully execute upon it. We are making strong and consistent progress as we focus on actions that drive long-term value creation. We are off to a good start and optimistic for the year. We continue to strengthen our capital structure, advance our financial priorities, and invest in the growth of our core lawn and garden business. The new multiyear share repurchase program demonstrates our commitment to shareholder-friendly actions that go beyond a robust quarterly dividend. The repurchases will be executed in a measured manner, to ensure alignment with our capital allocation strategy, our focus on leverage reduction, and the guidance we established for fiscal 2026.

We anticipate a phased approach with the repurchases expected to begin in late 2026 and increasing over time as we further reduce our leverage ratio, to be in line with our financial goal of below 3.5 times. With this background, I will move to our performance, starting with the divestiture of our Hawthorne business. With our board’s commitment and a pending sale transaction, starting this first fiscal quarter, we are classifying Hawthorne as a discontinued operation. We have removed Hawthorne from our ongoing operations and are reporting it separately as a single line item in the P&L called loss from discontinued operations net of tax. The prior first quarter result of operations has been updated to reflect this as well. We plan to recast the financial results to reflect Hawthorne as a discontinued operation for each of the quarterly periods in fiscal 2024 and 2025.

This will occur within the next few weeks and will help with your financial modeling and comparisons when you look at the performance of our Consumer business these past two years. As part of the transaction, Vireo Growth will acquire Hawthorne in exchange for its equity. And moving forward, this equity will be reported as a minority investment in our financial statements. In connection with the classification of Hawthorne as a discontinued operation, we took a pretax asset impairment charge of $105 million recorded within the loss from discontinued operations representing the excess of Hawthorne’s carrying value over its estimated selling price. Looking at our top-line sales this quarter, total company net sales, which exclude Hawthorne, were $354.4 million.

US consumer sales of $328.5 million were ahead of expectations due to changes in the timing of early season load-in with certain customers. Our first quarter represents around 10% of our full-year sales, and mostly reflects load-in activities tied to the upcoming spring and summer lawn and garden season. We expect retailers to increase these load-in activities as we draw closer to the POS curve. In fact, retailer shipments in January picked up at a record pace. Making it one of the highest January shipment months ever. Moving to POS, I want to call out an update this quarter. To our reporting of U.S. Consumer POS activity to align more closely with our go-forward focus of driving growth in our branded product sales, broadening our customer base, and growing in e-commerce.

We listened to your feedback and have taken steps to improve the clarity of our POS data we will use consistently in the future. Starting this quarter, we are providing a robust and comprehensive view of POS by expanding reporting from our previously reported three largest customers to include POS data from 15 of our largest customers including e-commerce. Reported POS will be for branded products only, excluding mulch, private label, and commodity items. In addition, POS by key business categories of lawns, gardens, and controls has been added to our supplemental financial presentation slides, posted on the website earlier this morning. This updated measure is more directionally aligned with our shipment activity and represents over 80% of our total US consumer sales activity.

Under this new reporting approach, our fiscal 2025 POS dollars were up 2%. Closely mirroring our plus 1% in US consumer sales. POS for the first quarter, which is less than 10% of our full fiscal year, was slightly down at 1% in both dollars and units compared to 2025. For context, the first quarter we just reported was comping against one of our strongest first quarters on record last year. Additionally, much of the fall season in calendar 2025 was pulled forward due to favorable weather conditions and this showed up in our strong POS in August and September 2025. Also, during 2026, we are starting to see POS dollars and units move more in line with one another compared to recent years due to a shift in our mix strategy. We expect this trend to continue.

Some of the POS bright spots in Q1 included gardens and Roundup. Nate explained the opportunities we see in indoor gardening, and this began to play out in Q1. POS in indoor gardening was up 7.7% in dollars and up 9% in units. In addition, Roundup saw strong consumer demand and was up 24% in dollars and 27% in units. We also saw good growth year over year in spreaders, weed, and insect control products. E-commerce was again a strong growth area. As we continue to drive substantial gains primarily through our retailer e-commerce sites. For the quarter, e-commerce POS dollars for our branded products were up 12%. And units were up 17%. Branded product e-commerce sales represented 14% of our overall POS in Q1, a 150 basis point increase over the prior year.

Gross margin expansion is a financial priority and for the quarter, we delivered a GAAP gross margin rate of 25%, up 90 basis points over the prior year. The non-GAAP adjusted gross margin rate was 25.4%, compared with 24.5% a year ago. The improvement was primarily driven by ongoing supply chain cost efficiencies coupled with our planned pricing actions. Moving down the P&L, SG&A for the quarter decreased 7% to $106 million, the result of equity compensation decreases that were partially offset by an increase in media and marketing to support our brands. Looking at the non-GAAP adjusted EBITDA for the quarter it was $3 million ahead of our expectations due to the timing shift of U.S. Consumer sales tied to seasonal load-in activities of our retail partners.

Below the line, interest expense continued to fall from lower debt balances and interest rates. Interest expense was $27.2 million, down 20% from 2025. We also reduced leverage nearly a half a turn ending the quarter at 4.03 times net debt to adjusted EBITDA, compared with 4.52 times in 2025. This was a result of continued deployment of free cash flow to debt reduction and improved EBITDA. Regarding free cash flow, it was favorable by $78 million in the quarter. Due to the timing of accruals, our continued focus on working capital management, including further supply chain optimization, and automation, making us more nimble during the seasonal inventory build. As for the bottom line, we delivered improvement here too. We typically report a loss in our first fiscal quarter.

This quarter, the GAAP net loss from continuing operations was $47.8 million or $0.83 per share. Versus $66.1 million or $1.15 per share in the prior year. The non-GAAP adjusted loss for the first quarter was $44.6 million or $0.77 per share. Versus $50.2 million or $0.88 per share in the prior year. Overall, we are pleased with our first-quarter performance. And have full confidence in our fiscal 2026 financial guidance. Which includes US consumer net sales growth of low single digits, non-GAAP adjusted gross margin rate of at least 32%, and non-GAAP adjusted earnings from continuing operations per share range of $4.15 to $4.35 per share. Non-GAAP adjusted EBITDA growth of mid-single digits, and free cash flow of $275 million driving leverage ratio down to the high threes.

As we continue to deliver upon the key elements of our mid-range plan through fiscal 2027, we are shifting our sights to the long-term growth prospects for our company. Jim addressed the financial priorities through fiscal 2030 and you can expect us to share more details related to these priorities and the plan at an Investor Day event we are planning this summer. Thank you, and I will now turn it over to the operator.

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Operator: Star one one on your telephone and wait for your name to be in touch. To withdraw your question, simply press star one one again. As a reminder, the consideration of time, please limit yourself to one question and one follow-up. Please standby for our first question. Now first question coming from the line of Peter Grom from UBS. Your line is now open.

Peter Grom: Great. Thank you, operator. Good morning, everybody. Maybe just going back to some of the original commentary around the work the team has been doing and I know we are going to get a lot more details at the Investor Day this summer. But the high degree of confidence that you can outperform the guidance this year. You maybe just talk about what is driving that? Or where you have increased confidence and visibility sales, margin, both at? You sounded quite optimistic. So any color, I think, would be helpful.

Mark J. Scheiwer: Sure. Good to talk to you Peter. This is Mark Scheiwer. I will start with some of the bottom line confidence and then I will let Jim and Nate speak to some of the top line as they see it, as they work with the operators. You will see in the gross margin line, obviously, we announced the Hawthorne divestiture. So that, as Jim alluded to, provided 40 basis points of benefit on a full-year basis. In addition, given our track record and some of our planning as we have gotten further into the year, we feel comfortable as we navigate that you know, we should be able to outperform 32% as a number. So I feel, you know, as we guide further in the year, we will give our customary update after the second quarter. And we can provide a little more refined guidance around call it, margin.

You did also see some good performance on interest expense down below the line as folks are navigating and managing cash flow really well. So I feel really good about how the team is navigating free cash flow on that side. And then just from my perspective on the finance side, on the top line, you know, as far as consensus and where we landed versus sales and what we have about on the last quarter call, you know, sales from retailers, it is a big load-in quarter for the quarter. And we saw really good positive momentum there. As we navigated the quarter. Maybe that exceeded some of our expectations initially at year-end.

Nate Baxter: And I will just add real quickly, Peter. You know, between the innovation we are bringing to market and the focus that we have in partnership with our retailers on the branded products, there is a lot of bullishness about the season. So we think all those things together is what sort of gives us our confidence.

James S. Hagedorn: And, you know, look, I would just throw in there from my point of view that when we put sort of the guidance together, and this is not unusual for us, it is really before our business plans are being finalized. Excuse me. And, you know, we are through the process of the work we do with our retailers. So, you know, I think that they were pretty conservative numbers. You know, I and I think that is what you guys would expect. I think everybody is saying, you know, under promise, over deliver. But between the guidance we gave and Nate and Nate’s operating numbers, there is quite a big difference. And so Nate, I think, is feeling confident that you know, we are at least better than the plan that Scheiwer put together, which is kind of a safety plan.

And so I think so far so good. And again, the part which is that at the consensus, and this goes to I think mostly confidence, in the numbers. We built an incentive plan that was approved by the board recently that is you know, the guidance numbers would not pay out at 100%. And I think that is important to just know where the management team is because the incentive does matter. And so I think there is a lot of confidence. I think if sales were here, but is not talking at the moment. But if they were talking, they would say, we have got excellent programs in place for the year. And I think the operating part of the business is being very well managed.

Peter Grom: Great. Thank you so much. I am going to pass it on.

Operator: Thank you. And our next coming from the line of Christopher Michael Carey with Wells Fargo Securities. Your line is now open.

Christopher Michael Carey: Hi. Good morning, everybody. Hey. Morning. Morning, Chris. So okay. So I I guess I sent some positive you know, early signs of, you know, retailer shipments both in the quarter and and perhaps even even quarter to date I believe the year is set up to be a bit more back half weighted from a growth standpoint. Can you just give us a sense of whether the early activity has evolved your view about, you know, the the the phasing through the year the timing of inventory loads? Or are these just weeks too small to read too much into and you are kind of still thinking the same thing? May maybe just give us a sense of how you are your thought process on on the cadence know, has has evolved through the year. And I guess that is really about your your ability to kind of shift to retailers and retailers receptivity. Thanks.

James S. Hagedorn: Chris, I would just throw out that it is no joke that the direction that I am leading is going to be less focused on the quarters and you know, I I I think it is a really know, honestly shitty way to run a businesses. And I I know I think everybody probably say that knows our business and knows just generally, public companies would say, do not let the quarterly results drive you guys and make you nuts. And part of what I am trying to get the operating team is to say, look, let us go for our milestones. Let us let us you know, and so I I think the answer is Mark will will answer it, but I think the answer is yes. It is evolving and back to a more traditional kind of pattern. Than we had. But, you know, you get snow in in the Northeast and, you know, a lot of parking lots in the Northeast are going to be full.

It will probably delay deliveries. And I think the the answer is it does not mean anything. You know? And so I I think the answer is yes. You are seeing evolution in that and maybe it is just back to kind of a more traditional Mark and I talked about this yesterday. It is like, what are you seeing on these patterns? You know, because I mean, think markets sort of I think it will get back to kinda fifty fifty And, you know, I said, is that you see that really happening? And he is like, well, kind of. But I think the thing is we are we are looking for the fiscal year and making the sort of milestones that we need to get to to make like, I am going to say, our plan work. And so I think generally, the answer is yes. But what I do not want to do is get all freaked out over the fact that there is just no doubt that you will see deviation a lot of it depending on weather.

Mark J. Scheiwer: Chris, just as a as a follow-up to what Jim said, I think going into the year when we talked to year-end, we we we kind of you know, had talked about effectively like a 2% shift in sales from call it, second half to first half unit And I I would I would say we do not have a a a ton more data, you know, the first quarter is a small part of the quarter. But you know, could I see it being a little bit less than that? Yes. I think it could be potentially like a 1% shift. You know, first second half to first half. So it could could be a little bit less than our expectation. Just, you know, again, we are trying to navigate a few years being out from COVID now. And the sales patterns, but the retailers are really supportive of us.

We have strong shelf space. And support, and and so that that that is very much the case. And so I I it could be less than what we had talked about at year-end. I think it could be but I think there will still be a little bit of a shift.

Nate Baxter: Yeah. Just, you know, we ended last year in a really good place with retailer inventories where we were down call it, 5%. So I think this just signals a little bit of optimism from retailers you know, making sure they have the inventory they need as we get ready for spring.

James S. Hagedorn: So I would I mean, you have talked to the retailers. You know? I do. You have out there, like, how are they feeling about this?

Nate Baxter: Good. Good. And I think even some of them commented, you know, we loaded in a little more than we thought we would. And I think it is because of the healthy inventory level and the optimism you know, with the one big beautiful bill, we are expecting some tax refunds. And I think, you know, retailers are bullish on season.

Christopher Michael Carey: Okay. Great. Thank you.

Operator: Thank you. Our next question coming from the line of Andrew Carter with Stifel.

Andrew Carter: Hey. Thank you. Good morning. Sorry. Was messing with the mute button. So if I understand it correctly, if you want to add a billion dollars from 2025 to the business, and you think about where 2026 will land, which will be a good base of branded, I am getting, like, kind of a $6.06 kinda CAGR from 2027 through or 2026 through 2030. Knows my math right? But if am I right range? And that would be kind of an acceleration at least a performance at the high end of what you expect the branded business to do this year. And how reliant is that on M&A? How reliant is some of these initiatives to be successful such as do it for me? And well as the e-commerce initiative.

Nate Baxter: So I I I would look at it this way. First of all, a lot of the initiatives we talk about really will not be accretive 2027 and beyond. So the M&A and some of the the do it for me and pro. What we are leaning into now is the e-commerce And, you know, we saw Mark talked about it in his prepared remarks, but, you know, we we saw, call it, sort of flat to negative 1% growth overall. Most of that was brick and mortar, but we saw double-digit growth. In e-commerce. And from a market share perspective, while we were flat in brick and mortar, we saw almost two points of gain in e-commerce. So Jim said it, know, it is about 5%. And that is really the path we have to to to get to. And I think the sum you know, my operating plan for 2026, as Jim said, is more aggressive.

We can talk more when we when we do the investor day, you know, later this year, but definitely have a plan. We are we are willing to talk through with you guys. Andrew, as a follow-up, Mark Scheiwer here. You are right. You are in the ballpark as far as growth rates go. And, you know, on the finance side, as I kinda look at the building block, as as we set up this year for 2026, pricing is a building block Volume growth is a building block. And then innovation or new product listings are a building block. So if I was to break down that, call it five, 6% of incremental sales growth, you know, those three would be big components of that. We are introducing the tuck-in M&A as well. As part of that. So that would be a part of that growth. I think some of the partnerships we are looking at I think it is safe to assume they would add probably a point of sales growth in the future as we as we navigate those partnerships and and really like those, those businesses, in the future.

So I those are probably the four biggest biggest blocks every depending on the year. You know, you may see you may see some of them outperform. And then underlying it all, obviously, would be the e-commerce growth. That that you are starting to that you have been seeing the past, call it, six quarters of our financial results. The the second question, I know that getting back to share repurchase this year, you outlined 40 million shares, which would be down 30% from where you are right now. I want to make sure I understand that the commit to that and if that is flexible, like, if you if the right M&A target came, that that would be off the table. And I assume I am not I am not sure how that would be treated, given the trust ownership, but would the trust participate in that?

I mean, it would it might hurt the the dynamics here. The trust moved up to, you know, 37%. So how are you thinking about all those things?

James S. Hagedorn: Yeah. I, you know, I I put 40 million in you know, in this So it is it is a long-term commitment. I frankly had a bigger percentage reduction in share count in mine but I thought this was a good sort of moderate to long-term target that I think people could get their head around and it it is it is sounded good to me. I think the limited partnership, not a trust, but the limited partnership would probably ride somewhere in the middle with you know, probably a little bit of liquidity selling into it, but majority accreting through that. So I I think that is what you are what you are likely just to see. And then, you know, I you know, it is where I am in my career. You know, I have got to look to my my partner that is sitting to my right side.

Nate, and say, dude, I do not want you getting amnesia on this shit. I do not want you deciding like, to me this is a really good strategy for us We you know, if you look at the investment we are making in the business, it is like three to one investment in the business relative to the repurchase. Okay? So I I think a lot of people have said, you sure you are investing sufficiently behind the business? And the answer is, absolutely. Nate is comfortable with that. He has got to drive these numbers. I think Mark is comfortable with it. I am comfortable with it. But you know, I I have got to say, I I have been the sort of architect of a lot of the M&A activity. And I think while putting Scotts together and sort of consolidating the United States lawn and garden market has been a good one for us.

I think a lot of the other stuff you know, which would have re would have been billions of dollars, Maybe it would have been better spent this is a super simple, easy to understand, not challenging, You know, it is a big deal for me to tell Scheiwer you got the keys on this and, you know, if you become uncomfortable, you you can delay or stop. And I do not want people to sort of get you know, just I am not going to use the word distracted, but to become convinced that some giant M&A deal is going to be the answer to it. I think that we like this company. And I think we think investing in this company and if we have to do M&A, like big M&A, billion plus M&A, we will do it in this company. And there is no integration risk. We can do it. We can maintain our leverage.

So you know, I am not going to say never because I think in sort of Air Force multiple choice test, the answer was do not ever answer that one. That is definitely a trick. So I am not sure the answer is never, but I I did make Nate promise me like, you are not going to forget this commitment.

Nate Baxter: Agreed. Yeah. No. And I look. I think when Jim shared his thoughts on the strategy, I think my response was something the effect of hell, yeah. I am all in. I mean, that is really why I came here. And we really believe in the business, and we think it is the best business around, so we will just invest in ourselves. And I am not worried about reinvesting in the business, like Jim said. 75% of that cash flow will be supporting growth in the business. So I am really comfortable with the plan.

James S. Hagedorn: And it just by the way, like, I called Nate at five in the morning, at his home, and he lives in this loft thing in Columbus. So it is like a big room. And he was like, in the dark. And I and I sort of said, here is what I am thinking. And within ten seconds, he said, I am in. And so that really is kinda how this whole thing started is. Calling Nate, getting his view it was just that quick. I am in. And then we developed it. We started expanding it with the team, brought the board in. And people are people are pretty happy with this. My view is this is our plan. We are sticking with it. Andrew, what do you think?

Andrew Carter: Well, I mean, I think that sounds like you got a nice opportunity cost filter for M&A now with a billion-dollar share repurchase commitment. That is my first blush.

Nate Baxter: No. I think it forces us to be really careful. I think I said it in my prepared remarks, you know, consumer-friendly, tuck-ins that fill gaps or allowed us to expand adjacent and, you know, we will not allow them to be decretive in any way. I think it is a really smart approach.

Andrew Carter: Thanks. I will pass it on.

Operator: Thank you. Our next question coming from the line of Joseph Altobello with Raymond James. Your line is now open.

Joseph Altobello: Thanks. Hey, guys. Good morning. A couple of questions on the e-commerce business. I think you mentioned it was up nicely double digits this quarter. And I think you said it was 14% of overall POS. How big can that business be? And I guess, maybe more importantly, what is the margin delta between e-commerce and and brick and mortar?

Nate Baxter: Well, look. I think I think the business can be huge. The list that occurred across all of our retailers You know, I I think that is an important point to make. They are really leaning into it. Very little of it comes from direct to consumer. So I think, you know, Joe, a cost I mean, look. The retailers obviously are highly competitive and trying to figure out how to continue to lower their costs. But we see less than five, you know, percentage point delta in some of the margins, and they are getting better, you know, every quarter. So as the the big guys and you know who they are, sort of invest in their infrastructure, we are riding along. And I think, you know, we are we are just seeing explosive growth, and it is it is not in just exclusive e-commerce.

It is also in our traditional brick and mortar partners. We we see a lot of opportunity. It it will be a a big percentage of that billion will come from e-commerce, you know, from various retail partners.

James S. Hagedorn: Look. I think that the e-commerce you know, if you look at I was at a top to top with with Nate and you know, e-commerce came up and Nate said we are underpenetrated. We have got to we have got to get to a level of you know, market share in e-commerce that we have in brick and mortar. And I nobody nobody argued the point. But if you just use that and say our share is the same and e-commerce that it is in and this is true across retailer sites. Everywhere. It it is a gigantic opportunity. More than half of that number Yeah. So, I mean, that that is the that is the part. Now what is the challenge? To Nate and his operating team a lot of those SKUs are are different. You know, their packaging is different. And so it is a lot of work.

I mean, we have talked about mean, part of this is our own fault. You know, in to some extent, which is where we are we are underpenetrated. That means other kind of hobos are overpenetrated. And that is a little hard to take. And I think in a world where brick and mortar was growing fast enough that you know, it just was not a great and it listen, we are simpletons here, I think, some ways. You know, you if you look at grocery, you look at e-commerce, we were doing incredible work in brick and mortar, and we have fabulous partnerships with with big retailers and they are absolutely you know, our our best friends. And they are building out this this this stuff too. But there is a lot of work for us to say, we we let us just say deserve to have market shares in e-commerce that we have in conventional retail.

And that is going to require change. In Nate’s organization and a level of entrepreneurship that says, we are going to get quite a bit more scrappy. And it because otherwise, you know, it just like everything else we have talked about whether it is grocery or e-commerce, like, if you want to succeed there, you have to have products and market and talk to people who are shopping there. Yep.

Joseph Altobello: Very helpful. Maybe if I could follow-up on that Obviously, we are here in late January. But how are are your retail partners thinking about the lawn and garden category this spring given all the, you know, the affordability issues and pressures on the consumer right now?

Nate Baxter: Well, look. You know, I I I spend a lot of time with our retail partners. I think everybody feeling bullish. I mean, it is, you know, it is the same story. It is a big part of bringing consumers back into the stores. And online. And I think they absolutely see those investments as worth it. I do not know, Josh, you want to make a comment on that?

Josh Meihls: Yeah. Josh Meihls here. I would say retail partner are are very bullish on Monogarden. To reiterate Nate’s point, they see it as a traffic driver into the stores, a traffic driver to their e-commerce. In financial times like this. Relatively, you know, unburdened by small projects, paint, lawn and garden tend to overperform, and that is where our retail are leaning in to drive that traffic and that conversion for both in-store and online.

Joseph Altobello: Got it. Thank you.

Operator: Thank you. And our next question comes from the line of Jonathan Matuszewski with Jefferies. Your line is now open.

Jonathan Matuszewski: Great. Good morning, and thanks for taking my questions. My first one was on supply chain. You have outlined a multifaceted plan here, you know, everything from automation to more capacity and and SKU rationalization. Any way to rank order some of these things as we as we think about kind of the the biggest opportunity for cost savings and and gross margin ahead? That is my first question. Thanks.

Nate Baxter: Thanks, Jonathan. I you know what? Look. I think they are all important I think if you look at the performance we delivered in last year, I think our team is pretty confident they can continue. As you recall, if we over-delivered, I think we ended up a $100 million out of supply chain, including commodities last year. Got $50 million to go in my original challenge. There will probably be another challenge coming. I it it is a little bit of everything everywhere. So remember, the way we approach, for example, efficiency in our plants you know, a lot of these plants are 50 years old, and the equipment is nearly that old. Way Josh sort of manages that is when we have to replace a line, a bagging line, going to be a more modern, obviously, line that has probably at least a 20-30% improvement in throughput.

So it is it is really the sum of a lot of small changes some of the bigger areas are automation in our distribution center. I think, you know, you know, we have been on a journey. So we will continue to deliver results there. And then you know, our our tech transformation. I mean, we are in the process of completely reimagining all of our business processes. Part of our ERP migration, but it is more than that. It is including do we reduce the number of touches on any given project, whether it is a finance project or a marketing one. So I I do not know if I can, rank order them for you, but I can say is I have a lot of confidence that these initiatives are going to continue to to help drive the bottom line.

Mark J. Scheiwer: And, Jonathan, this is Mark Scheiwer. The other the other components of improving gross margin at the COGS line are going to be continue to be fixed cost leverage as we as we automate and get more efficient in our factories, we should be able to push more product through those, both distribution locations and factories. So we should get fixed cost leverage benefits going up. And then innovation as we look to continue to do cost out in our products and and continue to make them more eff stronger, better, all that. So I would say those two things also are part of that. That journey.

Jonathan Matuszewski: That is helpful. And then just a quick follow-up here. Pro penetration continues to rise at your key retail partners. Just curious, what are you doing different to collaborate with the big retail partners of yours to, you know, move Scott to the the consideration sets of of more of their pro customers versus DIY Presumably, this would be something in addition to the DIFMF or you are pursuing in those pilot markets you mentioned.

Nate Baxter: Yeah, Jonathan. I mean, I I I do not want to get into specifics, but clearly, big retail partners have big pro initiatives. And I would say the way we are addressing that is product development you know, looking at larger sizes, more value to bring to the pro side of the market. But as you point out, it is a it is a multipronged approach. We will work with retail partners We will also work directly with small and medium-sized businesses But at the end of the day, again, we are we are agnostic of where they get our product. So we would just want to make it available in channels that makes it easy for those pros and do it for me. Businesses to to thrive. And so it will it will be pretty broad I think I will leave it there. We will probably have more to talk about this summer when we do our investor day in that space.

Jonathan Matuszewski: Thank you.

Operator: Our next coming from the line of William Reuter with Bank of America.

William Reuter: Hi. I just have two. The first, Mark, when you were discussing M&A, you mentioned 1% growth. So is that to say that, that 5% annual growth target includes about 1% annually?

Mark J. Scheiwer: That is correct. Yeah. That would be out in the not this year. But it would be focused on 2027 and beyond.

William Reuter: Got it. And then when we have been discussing the incremental 50 million of cost savings, in one of the most recent answers, we talked about the 50 million that we we still have. It seems like some of those are investments that are in the CapEx line. Will CapEx remain elevated in future years Or is the elevated CapEx really related to the $50 million of cost savings we are targeting this year, and then will move back towards maybe a $100 million or lower.

Mark J. Scheiwer: We are still building out, I would say, like, our five-year road map as far as long-term plan. But I would expect our CapEx remain elevated at call it, a $130 million in 2027 and beyond. And and be as we look to automate not only our factories, but also our back-office activities. But in in the near term, as as what I am seeing in the business and what we are working on, I would say for the next several years. That is that is correct.

Nate Baxter: Plus there is the ERP component over the next, call it, two to three years. That will be part of that CapEx as well.

William Reuter: Got it. That makes sense. Okay. Alright. That is all for me. Thank you.

Mark J. Scheiwer: Yep. Last one. Thank you.

Operator: Now last questioner will come from the line of Jakob Museven. From JPMorgan. Your line is now open.

Carla Casella: Hi. This is actually Carla Casella from JPMorgan. Just your thoughts in terms of the longer-term capital structure. And you mentioned your leverage target, but how did you say how you are going to address the 2026 maturity?

Mark J. Scheiwer: Sure. Hello, Carla. This is Mark Scheiwer. So the 2026 maturities, we plan to you you saw on our balance sheet, they they moved to current. Our expectation is we would leverage our free cash flow generation that we that we generate over the summer. That is built into our $275 million of free cash flow plan. Along with access to a revolver to to pay those to pay those off. You know, later this summer. You know, as they as they start to come due. So we will do that you know, at in the summertime. And leverage again free cash flow and then access to our revolving revolver.

Carla Casella: Okay. Great. And then you mentioned you are going to post financials excluding Hawthorne. Can you just give us a goalpost for what EBITDA was last year with Hawthorne on kind of backing into like a $5.30. Does that sound like the right range? Yeah. So

Mark J. Scheiwer: so last year, we had adjusted EBITDA with Hawthorne of $581 million. We are still working through the finalization of the recast, but I would expect it probably decrease by approximately $11 million. When you back out the Hawthorne. So call it call it around $570 million from an EBITDA perspective for the 2025 fiscal 2025 recasted number. And we will we will provide you the 2024 number in those materials as well but that would be the 2025 number.

Carla Casella: Okay. Great. Thank you.

Operator: Thank you. And that is the time we have our Q&A session. Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. And you may now disconnect.

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