Lawn and garden products maker Scotts Miracle-Gro Co. (NYSE: SMG) reported lower-than-expected third quarter earnings ending July 1, 2023, mainly due to a sharp decline in its hydroponic business segment, Hawthorne.
The company, also a big player in the indoor and hydroponic growing market, reported revenue of $1.12 billion, a 5.9% decrease year-over-year, falling short of Yahoo analyst estimates by $50 million.
The overall dip in revenue was largely attributed to a 40% drop in sales from the Hawthorne division. However, Scotts saw a 1% increase in its U.S. consumer net sales compared to last year. The company also reported an 8% increase in consumer point-of-sale dollars in the third quarter and over 5% growth year-to-date.
“Regional weather extremes, inflationary pressures and price elasticity contributed to declines in retail foot traffic and volume,” CEO Jim Hagedorn said in a statement Wednesday. “Despite these challenges, POS dollars are up, and we’ve had market share gains.”
“For a variety of reasons, Lawns has not performed to expectations. With up to a third of our Lawns business in the fall, we are investing in aggressive consumer activation programs to narrow the delta.”
Scotts now anticipates its total net sales to fall by approximately 10-11% this year, primarily due to a 2-4% decline in the U.S. consumer segment and a more substantial decrease of 30-35% in the Hawthorne segment.
Despite the financial setbacks, the company has managed to achieve over $300 million in savings through their cost-cutting initiative, “Project Springboard.” Scotts also amended its credit agreement to increase operational flexibility amid the challenges.
Scotts has previously said it is working towards getting Hawthorne to break even. Hagedorn was asked in a May earnings call about a previous plan to make Hawthorne a separate company. However, he said that this isn’t going to happen just yet. According to him, before the division can be sustainable as a separate company and a leader in the market, it needs to have over $1 billion in sales and over $100 million in profit.
Although the third quarter didn’t meet expectations, the company has improved its cash flow significantly and is optimistic about generating strong free cash flow. It aims to reach $1 billion in cash flow by the end of fiscal 2024.
Scotts’ shares ticked down nearly 20% in Wednesday trading following the announcement.