The Scotts Miracle-Gro Company (NYSE:SMG) Q1 2023 Earnings Call Transcript

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Chris Hagedorn: Hey. So, Joe, it’s Chris. I will take the first part and I will let Matt take the second part. Yeah. It’s really — it’s sort of your latter assumption there is that we had baked an assumption of some market recovery in the earlier part of this year into our plan going in. We still expect to see some recovery in the marketplace, but it obviously, didn’t materialize this quarter the way that we have been hoping. Now, I mean, I think, it’s worth noting, I got a text message from a competitor of ours yesterday and this was — this is someone who — he was the President and CEO of General Hydroponics when we bought that business and someone we stay close with over the years and very plugged into the industry. He reached out to me and prompt yesterday and said, hey, been thinking about you just want to let you know I feel the wins at my back out here in California for the first time in a long time.

So we are starting to hear some rumblings and seeing some signs, I think, that the industry is beginning to gain traction, but obviously, with the way the last year plus has gone, we are going to wait before we start counting our checks. But I will let Matt take the second part.

Matt Garth: Yeah. And on a profitability perspective, we weren’t really calling for a significant increase or additive EBITDA to our full year projection coming from Hawthorne. If you remember, coming from where we were last year, doing the efforts through Project Springboard to realign the cost structure with where we are from a demand and revenue component, that was going to bring us to some positive EBITDA contribution. Now with this call down on topline revenue, that brings it down a little bit sort of hovering around breakeven plus 5 and so we are going to navigate that as we continue to go through the rest of the year. . And like Chris just said, whatever bright spots are there, they will kind of mitigate any further downside that may come. So we sort of split the difference on that 20% to 25% outlook coming off of a 31% down first quarter, we are calling again up for quarters going through the rest of the year and so that is some positivity that we see.

Joseph Altobello: Okay. Great. Thank you, guys.

Operator: Thank you. Our next question comes from Chris Carey with Wells Fargo. Your line is open.

Chris Carey: Hi. Good morning.

Jim Hagedorn: Hey.

Chris Carey: Just I just wanted to confirm U.S. consumer. So shipments flat for the front half of the year. Just to be really specific, would imply shipments being up in Q2 and with the expectation for POS for the full year, obviously, shipments are going to track below. Is it — are you saying organic sales growth for the U.S. consumer business should be up in the high-single digits this year and maybe shipments are not down that much, and with that sort of outcome, would you expect margins to be able to re-expand in the U.S. consumer business or is the commodity impact and the other things that you are seeing still going away?

Matt Garth: So let me clarify something there. What we are calling for is on the topline. When you look year-over-year, you are actually seeing overall volumes down as we pointed to in the call last quarter, but we are pushing through the pricing. That pricing that we put through is carrying through and you see that in the press release, detailed very nicely. So, the first half of the year will be slightly up on revenue. Again, if you look at that first quarter performance outpaced what we thought and Jim spoke to that, we probably pulled in kind of $8 million to $10 million from Q2 to Q1. Jim also just said that we are forecasting that we are going to hold that as we move into the second quarter. So that proves out a really strong first half.

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