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

Page 4 of 17

However, again, volumes slightly down really, meaning shipments, but that pricing coming through. From a POS perspective, you are absolutely right and I am going to speak to this in two components. One, what’s been demonstrated and how that’s performing and you heard that from Texas and from Florida, the early spring season areas of the country performing well and showing good signs of consumer engagement. That leads to where we stand for later in the season here in the Northeast and other parts of the country as things start to warm up. Again, still looking for a POS that is going to be slightly down, but again, pricing very strong, and as Mike just said, should the consumer come in at a good level, recall that we have made adjustments to our operations, we are producing at a lower level at this point to help us from a cash perspective and so we will be working very closely with our customers to ensure that they have the product they need should POS come in stronger.

Jim Hagedorn: But I — Jim here. I would say from my point of view and I am not sure what Mike would say on this. But we struggled, I think, pretty heavily with Dave as we kind of put together our forecast for 2023. And Mike and I basically just plug zero and it’s not because we think the consumer is sick or anything, we just wanted to put a conservative number in and plus 10 on lawns after minus 20, which we thought was weather related, we thought was also conservative and safe. So we were basically looking to build the revenue numbers that we are just — we are safe and so I personally wouldn’t read a lot in that. I think it next call, we are going to know a lot more how the consumer is doing.

Mike Lukemire: Yeah

Jim Hagedorn: But I would not try to put too much precision into our forecast. We were — this was a pretty wicked discussions internally on just what we wanted to commit to and not get on the wrong side of everything. So the flat was not because really anything other than we just wanted to put a number we were confident after what we have just viewed as a really crappy year last year.

Chris Carey: Yeah. That makes — so

Mike Lukemire: Yeah.

Chris Carey: when you say flat, you mean your organic volume shipments in the front half of the year, you are expecting flat, just to be clear. Sorry, I just wanted to confirm that. I didn’t mean to interrupt.

Jim Hagedorn: No. No. It’s okay. You are the one asking the questions and we are here to answer.

Matt Garth: So volumes are going to be slightly up in the first half across all categories. But when we are talking, I guess, the outlook that I gave, Chris, just to be specific about that slightly higher year-over-year for the first half is on the topline.

Jim Hagedorn: Great. Somebody wants to say, say it. The people here are all motioning.

Matt Garth: We are good.

Jim Hagedorn: Okay.

Chris Carey: Okay. Okay. And then just as a follow-up, for the Hawthorne segment, right? So this glide path to improvement in profit by the end of the year, so are you saying that you expect by fiscal Q4 that the segment profit should effectively be zero that you are running neutral, and between now and then, you are running negative. So, again, the idea is to get flat by the end of the year, and then just on that, do you have any view on U.S. consumer margin, the ability to be up or down just on the prior question? So that’s it for me.

Page 4 of 17