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

Matt Garth: Yeah. I think that’s, obviously, you are coming out of the first quarter you are seeing the segment profitability in Hawthorn. So, yeah, the glide path as we move through the year will be improving and I think we are going to get another bite at that apple here in the second quarter as we start to see some seasonal uptick. So we will keep you abreast of what’s happening in Hawthorne next time we speak and the full year outlook there, but yeah, progressively improving as we make our way through the quarter. From a U.S. consumer margin perspective, you have seen a lot actually take place in terms of what we had expected, I think, what we had originally communicated and versus last year, what we were able to do. The performance of the team, the costs that have come out of the business, the efficiencies that we are running have put us and you saw it in the gross margin line as well in a good position to start to begin to think about how you recover back to those sort of early 30s, mid-30s type margins in U.S. consumer that Mike like to talk about and that is going to be a combination of higher volumes coming out of the production facility.

That’s going to come with time and maybe we can get some of that this year. Remember, we called that down for this year. And the other component of that is going to be what happens on the commodity side and so watching that, and like I just said in my prepared remarks, we have about 70% of our COGS already tied up. So pretty good outlook for this year, but that will be helping us progress back to those margins as we move forward.

Mike Lukemire: No. I think it’s going to recover as the commodities adjust. We also have a bunch of costs out as well.

Chris Carey: Yeah.

Mike Lukemire: And so — and then mix is always a factor for us. So strong lawn season. It’s a good mix. So I am pretty optimistic we are going to get back there over time, yeah.

Chris Carey: Okay. Thanks so much.

Operator: Thank you. Our next question comes from Eric Bosshard with Cleveland Research. Your line is open.

Eric Bosshard: Good morning.

Jim Hagedorn: Hey, Eric.

Eric Bosshard: Two things, if I could. First of all, Matt, you talked about upside to SG&A saves into 2024, and I just wanted to dig in a little bit in 2024, obviously, we got a long ways to go in 2023. But as you think about the amount of SG&A you have taken out of the business and this is mostly on the consumer side. I am just trying to get a sense of how much do you have to reinvest back into the business in 2024 to serve customers and to drive the business or is the cost structure and the operating structure in 2023, what’s sustainable and then growth in 2024 and beyond levers off of that?