10-K: Scotts Miracle-Gro Reports Fiscal 2025 Net Income Growth

The Scotts Miracle-Gro Company reported a significant turnaround in fiscal 2025, achieving net income of $145.2 million and improved gross margin, despite a slight decrease in overall net sales.

Summary

• Net sales for fiscal 2025 decreased by 3.9% to $3,413.1 million from $3,552.7 million in fiscal 2024.
• Net income for fiscal 2025 was $145.2 million ($2.47 per diluted share), a significant improvement from a net loss of $(34.9) million ($(0.61) per diluted share) in fiscal 2024.
• Gross margin rate increased to 30.6% in fiscal 2025 from 23.9% in fiscal 2024 and 18.5% in fiscal 2023.
• U.S. Consumer segment net sales decreased by 0.7% to $2,993.7 million, primarily due to nonrecurring sales in fiscal 2024 and decreased pricing, partially offset by higher sales volume in soils, mulch, grass seed, and spreader products.
• Hawthorne segment net sales decreased significantly by 43.7% to $165.8 million, driven by lower sales volume, discontinuation of other companies' products, and decreased pricing.
• Other segment net sales increased by 3.8% to $253.6 million, driven by higher sales volume and increased pricing, partially offset by unfavorable foreign exchange rates.
• Income from operations increased to $358.6 million in fiscal 2025 compared to $208.8 million in fiscal 2024.
• Interest expense decreased by 18.9% to $128.8 million due to lower average borrowings and a decrease in the weighted average interest rate.
• Cash provided by operating activities totaled $371.3 million for fiscal 2025, a decrease from $667.5 million for fiscal 2024, driven by higher inventory production and timing of accounts receivable sales.
• The company completed the divestiture of its Hawthorne professional horticulture business in the Netherlands for $8.5 million, resulting in a non-tax-deductible loss on sale of $17.7 million.
• A Seventh Amended and Restated Credit Agreement was entered into on November 21, 2025, reducing total senior secured loan facilities from $2,500.0 million to $2,000.0 million.

Sentiment

Score: 7

Explanation: The company demonstrated a strong financial turnaround in fiscal 2025, moving from a net loss to significant net income and improving key profitability metrics like gross margin and operating income. While net sales declined and the Hawthorne segment faces ongoing challenges, effective cost management, debt reduction, and U.S. Consumer segment strength contributed to a positive shift. The new credit agreement also provides financial flexibility.

Positives

• Achieved a significant turnaround from a net loss of $(34.9) million in fiscal 2024 to a net income of $145.2 million in fiscal 2025.
• Gross margin rate substantially improved to 30.6% in fiscal 2025 from 23.9% in fiscal 2024, indicating better profitability.
• Income from operations increased significantly to $358.6 million in fiscal 2025 from $208.8 million in fiscal 2024.
• Interest expense decreased by 18.9% to $128.8 million, driven by lower average borrowings and a decrease in the weighted average interest rate.
• The U.S. Consumer segment experienced higher sales volume in key product categories such as soils, mulch, grass seed, and spreader products.
• The Other segment (primarily Canada consumer lawn and garden) showed net sales growth of 3.8% and a significant profit increase of 170.2% in fiscal 2025.
• The Hawthorne segment returned to a Segment Profit of $2.8 million in fiscal 2025 from a Segment Loss of $(14.2) million in fiscal 2024, indicating operational optimization despite sales decline.
• The leverage ratio improved to 4.10 at September 30, 2025, which is below the maximum permitted ratio of 4.75 for the fourth quarter of fiscal 2025.
• The interest coverage ratio was 4.78 for the twelve months ended September 30, 2025, well above the minimum required 2.00 for Senior Notes and 3.00 for the new Seventh A&R Credit Agreement.

Negatives

• Overall net sales decreased by 3.9% in fiscal 2025 compared to fiscal 2024.
• The Hawthorne segment experienced a substantial sales decline of 43.7% due to an oversupply of cannabis, reduced indoor and outdoor cultivation, and the discontinuation of sales of other companies' products.
• Cash provided by operating activities decreased to $371.3 million in fiscal 2025 from $667.5 million in fiscal 2024, primarily due to higher inventory production and the timing of accounts receivable sales.
• Incurred a non-tax-deductible loss of $17.7 million on the divestiture of the Hawthorne professional horticulture business in the Netherlands.
• Employee and executive severance charges amounted to $25.3 million in fiscal 2025.
• A charge of $7.5 million was incurred in fiscal 2025 related to a settlement agreement for litigation with former shareholders of an acquired business.
• A non-cash loss of $7.0 million was recorded in fiscal 2025 due to the exchange of a convertible debt investment in RIV Capital for non-voting exchangeable shares of FLUENT Corp.
• Impairment charges of $3.6 million were associated with Hawthorne finite-lived intangible assets in fiscal 2025.
• Selling, general and administrative expenses increased by $44.4 million, or 7.9%, in fiscal 2025, driven by higher advertising and short-term variable cash incentive compensation expense.

Risks

• Underestimating or overestimating demand for products and not maintaining appropriate inventory levels could negatively impact net sales, profit margins, working capital, and cash flow.
• An economic downturn and economic uncertainty, including potential recession and increased inflation, may adversely affect demand for products and financial results.
• Disruptions in availability or increases in the prices of raw materials, fuel, or transportation costs could adversely affect results of operations.
• Concentration of sales to a small number of retail customers (The Home Depot and Lowe's accounted for 52% of fiscal 2025 net sales) poses a risk of significant reduction in orders or loss of customers.
• Inability to successfully develop new product lines and products or improve existing ones could adversely affect market share and financial results.
• Marketing activities may not be successful, leading to significant expenses without corresponding revenue increases.
• The highly competitive nature of markets could adversely affect the ability to maintain or grow revenues.
• Manufacturing operations, including reliance on third-party manufacturers, could harm the business due to production delays, interruptions, or inferior product quality.
• Risks associated with sourcing and manufacturing outside of the U.S., including tariffs and international trade wars, could increase costs or disrupt supply.
• Reliance on a limited base of suppliers for certain raw materials and components may result in business disruptions.
• Significant interruptions in the operation of company or supplier facilities could adversely impact manufacturing capacity and supply chain.
• Disruptions to transportation channels used for product distribution may adversely affect margins and profitability.
• International operations subject the company to costs and risks associated with foreign countries, including currency fluctuations, regulatory requirements, and intellectual property protection.
• Failure of disaster recovery and business continuity plans, including those related to sophisticated cyber threats and artificial intelligence, could interrupt operations and harm reputation.
• Climate change and unfavorable weather conditions could adversely impact consumer lawn and garden sales and affect raw material availability and costs.
• Negative impacts from corporate citizenship and sustainability matters, or failures in reporting such matters, could adversely affect financial condition and reputation.
• Uncertainty surrounding legislation, regulation, and governmental policy at the U.S. federal level could negatively impact financial condition.
• Product recalls or other product liability claims could materially and adversely affect the business, financial condition, and results of operations.
• Damage to brand perception or organizational reputation from negative third-party research, media reports, or negative publicity could adversely affect sales and financial condition.
• Certain products (e.g., hydroponic gardening products) may be purchased for use in new and emerging industries (e.g., cannabis) subject to varying, inconsistent, and rapidly changing laws and consumer perceptions.
• Inability to effectively execute e-commerce business could harm reputation and operating results.
• Information or operational technology system failures, data breaches, or cyber attacks could impair operations, lead to loss of data, and result in regulatory proceedings or reputational harm.
• Insurance coverage may not be sufficient to mitigate claims or liabilities, and appropriate coverage may not be obtainable in the future.
• Termination or material decline of the Third Restated Agreement for Monsanto's consumer Roundup® products would result in the loss of a substantial source of future earnings and overhead expense absorption.
• Inability to adequately protect intellectual property and other proprietary rights, including risks from artificial intelligence, could adversely affect the business.
• Success depends upon the retention and availability of key personnel and the effective succession of senior management.
• Workforce reductions may cause undesirable consequences such as attrition, reduced employee morale, and difficulty in recruiting and retaining associates.
• Involvement in legal proceedings, including class actions, shareholder derivative suits, and asbestos-related claims, could result in substantial costs, judgments, or negative operational impacts.
• Indebtedness could limit financial flexibility and adversely affect financial condition, including risks from restrictive financial covenants and variable interest rates.
• Global economic and capital market conditions may limit access to capital and/or increase the costs of such capital.
• Acquisitions, other strategic alliances, and investments could result in operating difficulties, dilution, and other harmful consequences.
• A failure to dispose of assets or businesses in a timely manner may have an adverse effect on results of operations and financial condition.
• Lending activities to strategic partners may adversely impact business and results of operations due to credit losses.
• Changes in credit ratings issued by nationally recognized statistical rating organizations could adversely affect the cost of financing and the market price of Senior Notes.
• Hedging arrangements expose the company to certain counterparty and market risks.
• Postretirement-related costs and funding requirements could increase due to volatility in financial markets, changes in interest rates, and actuarial assumptions.
• Compliance with environmental and other public health regulations (e.g., FIFRA, PFAS) or changes in such regulations could increase costs or limit the ability to market certain products.
• Unanticipated changes in tax provisions, the adoption of new tax legislation, or exposure to additional tax liabilities could affect financial condition.
• Hagedorn Partnership, L.P. beneficially owns approximately 23% of common shares and can significantly influence decisions requiring shareholder approval.
• The company's decision to maintain, reduce, or discontinue paying cash dividends or repurchasing common shares could cause the market price for common shares to decline.

Future Outlook

The company anticipates continued adverse impact on its Hawthorne segment due to the oversupply of cannabis. It expects to continue investing in research and development, advertising, and consumer activation programs to drive category growth and maintain/increase market share. Fiscal 2026 capital expenditures are projected to be approximately $100.0 million, with allocations towards maintenance, cost savings, and innovation/expansion. Management believes that cash flows from operations and available borrowings will be sufficient to meet future debt service, capital expenditures, and working capital needs. The One Big Beautiful Bill Act (OBBBA) is not expected to have a material impact on the effective tax rate in future periods.

Management Comments

• "Our consumer lawn and garden business in any year is susceptible to weather conditions in the markets in which our products are sold. These climate conditions may adversely impact the sale of certain products or increase demand for other products thereby making the overall impact of abnormal or extreme weather conditions on us difficult to predict."
• "We believe that our diversified product line and our geographic diversification reduce this risk, although to a lesser extent in a year in which unfavorable weather is geographically widespread and extends across a significant portion of the lawn and garden season."
• "We believe that weather conditions in any one year, positive or negative, do not materially impact longer-term category growth trends."
• "We expect that the oversupply of cannabis will continue to adversely impact our Hawthorne segment. If the oversupply of cannabis persists longer, or is more significant than we expect, our results of operations could be materially and adversely impacted for a longer period and to a greater extent than we currently anticipate."
• "We continue to monitor the impacts of macroeconomic conditions, including elevated interest rates and the impact of inflationary pressures on input costs and consumer behavior; as well as geopolitical uncertainty, including the duration and resolution of ongoing conflicts, potential escalation of tensions and global supply chain disruptions."
• "We are also continuing to monitor ongoing changes to global trade policies, including the imposition of tariffs."
• "We believe that our assessment of contingencies is reasonable and that the related accruals, in the aggregate, are adequate; however, there can be no assurance that the final resolution of these matters will not have a material effect on our financial condition, results of operations or cash flows."

Industry Context

The Scotts Miracle-Gro Company operates as a leading marketer in the North American consumer lawn and garden industry through its U.S. Consumer and Other segments, leveraging well-known brands like Scotts®, Miracle-Gro®, Ortho®, and Tomcat®. This segment is highly seasonal and susceptible to weather conditions, but the company's diversified product line and geographic reach are intended to mitigate this risk. The Hawthorne segment, focused on indoor and hydroponic gardening, faces significant headwinds from the oversupply of cannabis, which has led to lower wholesale prices and reduced cultivation, indicating a challenging and volatile market tied to the cannabis industry. The overall market for the company's products is highly competitive, requiring continuous product innovation, strong brand marketing, and efficient supply chain management against national, regional, and private label competitors.

Management Changes

Corporate Governance

Legal Proceedings

• A consolidated shareholder class action lawsuit (In re The Scotts Miracle-Gro Company Securities Litigation, Case No. 2:24-cv-03132) was filed on behalf of proposed purchasers of Common Shares between May 5, 2021, and August 1, 2023, alleging misstatements about the company's inventories, sales, and business prospects. The company believes the claims are without merit and intends to vigorously defend the action.
• A series of shareholder derivative lawsuits were filed in Ohio state and federal courts against certain current and former directors and officers, mirroring the allegations in the securities lawsuits and asserting claims for breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets.
• The company is a defendant in several cases alleging injuries from exposure to asbestos-containing products, based on historic use of vermiculite. The company believes these claims are without merit and is vigorously defending them, with no accruals recorded as the likelihood of loss is not probable or material.
• Other lawsuits and claims arising in the normal course of business, including advertising claims, employment disputes, and intellectual property rights enforcement, are not expected to have a material adverse effect on the company's financial condition, results of operations, or cash flows.

Related Party Transactions

• Hagedorn Partnership, L.P., of which James Hagedorn (Chairman & CEO) is a general partner, beneficially owned approximately 23% of the company's outstanding Common Shares as of November 21, 2025, giving it significant influence over shareholder decisions.
• Christopher J. Hagedorn (Executive Vice President & Chief of Staff) is the son of James Hagedorn.
• Katherine Hagedorn Littlefield (Director) is the sister of James Hagedorn.
• Hagedorn Partnership, L.P. adopted a Rule 10b5-1 plan on September 16, 2025, to sell up to 130,000 Common Shares between December 18, 2025, and December 17, 2026.
• The company sold its Hawthorne professional horticulture business in the Netherlands to Bad Dog Holdings LLC (BDH) for $8.5 million, financed by a loan from the company. BDH is a newly formed legal entity owned and controlled by a strategic partner of the company. The company has a call option to reacquire THC shares and consolidates BDH as a variable interest entity.

Stakeholder Impact

• Shareholders: Potential positive impact from the financial turnaround, improved profitability, and debt reduction. However, ongoing litigation, challenges in the Hawthorne segment, and the significant influence of Hagedorn Partnership, L.P. introduce elements of risk and potential for differing interests.
• Employees: Workforce reductions have occurred as part of restructuring initiatives, potentially impacting morale and retention. The company emphasizes programs for engagement, diversity, growth, development, and health/safety.
• Customers: Impacted by the company's product innovation, quality, and marketing efforts. The concentration of sales to major retailers like Home Depot and Lowe's creates a dependency.
• Suppliers: Reliance on a limited base of suppliers for certain raw materials creates supply chain risks. The company also operates a supplier finance program.
• Creditors: Improved leverage and interest coverage ratios are positive indicators for debt holders. The new Seventh A&R Credit Agreement provides a clear framework for debt obligations and covenants.

Next Steps

• File definitive Proxy Statement for the 2026 Annual Meeting of Shareholders within 120 days of September 30, 2025.
• Hagedorn Partnership, L.P. may begin selling up to 130,000 Common Shares under a Rule 10b5-1 plan starting December 18, 2025, and ending December 17, 2026.
• Operations at one manufacturing and one distribution location in the U.S. are scheduled to begin in fiscal 2026.
• Expected capital expenditures for fiscal 2026 are approximately $100.0 million.
• The Seventh Amended and Restated Credit Agreement will terminate on November 21, 2030.
• The Master Receivables Purchase Agreement expires on September 1, 2026.
• A Canadian audit covering fiscal years 2020 through 2021 and a United Kingdom audit covering fiscal year 2023 are in process.
• The company is currently under examination by certain U.S. state and local tax authorities covering various periods from fiscal years 2018 through 2023.

Key Dates

Recommendation

The Scotts Miracle-Gro Company has demonstrated a commendable financial turnaround in fiscal 2025, moving from a substantial net loss to a solid net income. This recovery is largely driven by improved gross margins and effective cost management, particularly within the U.S. Consumer segment. The reduction in interest expense and improved leverage ratios also signal a healthier financial position. However, the significant and persistent decline in the Hawthorne segment, primarily due to the cannabis industry's oversupply issues, remains a major concern and a drag on overall performance. While the company is optimizing Hawthorne's operations, the market dynamics are largely external and unpredictable. Additionally, ongoing shareholder litigation and the inherent seasonality and weather dependency of the core business introduce elements of risk. Given the strong recovery in core profitability but persistent challenges in a growth segment and legal uncertainties, a 'Hold' recommendation is appropriate. Investors should monitor the stabilization of the Hawthorne segment and the resolution of legal matters for potential future upside, but the current environment suggests a balanced risk-reward profile.

Keywords

Lawn and Garden, Hydroponics, Consumer Products, Fertilizer, Pesticides, Soils, Roundup, Hawthorne, SEC Filing, 10-K, Financial Results, Net Income, Gross Margin, Debt, Corporate Governance, Risk Management, Sustainability, Cybersecurity, Shareholder Litigation